Recession or Depression. In this day and age the word “recession” is thrown about readily. I wondered what is the difference in the power of a word. Of course being a person who likes to be informed I did a little research. Economics is not a subject I enjoy but I find that circumstance has caused me to strengthen my education.
Did you know that there have been depressions throughout American history? In standard history we learn about the stock market crash of 1929 and that the U.S. economy did not rebound until the war effort of the 40’s. Stocks purchased on margin caused a run on the banks, we moved from the gold standard to silver, lack of credit, a steady drop in prices, less production leading to unemployment.
There was the Great Panic of 1837. What caused this panic? Oddly enough real estate speculation and the federal government’s use of paper money. Not one to let an era go by without having some recognition other then the Civil War, Queen Victoria, the Transatlantic Cable and a myriad of other notable events. The Great Panic moved into the Long Depression.
The Long Depression offers something that is overwhelming. The Long Depression started in 1837 and ended at the turn of the century. During this time there were protectionist tariffs, over expansion and speculation of the railroads. Add paper currency without the backing of gold and/or silver, falling crop prices. The Silver Purchasing Act. Oh do not forget, the increase of production of goods and the lack of markets to sell them in (i.e. the expansion into Africa, Asia and South America). Wow, a depression that brought about imperialism!
I am only looking at this from America’s viewpoint. There were also countries throughout Europe that were also affected adversely. Worldwide “economic conflagrations” is nothing new.
That is the list of depressions what about recessions?
Panic of 1797 –Britain’s economy tank during the on going wars with France
Panic of 1819 - Embargo Act of 1807 caused the downturn in shipping and support industries.
Panic of 1837 – Economic expansion came to halt after the War of 1812. Unemployment, bank failures and foreclosures.
Panic of 1857 – Speculation of the railroads.
Panic of 1873 - Civil War speculative bubble burst
Panic of 1907 – Run on the banks after the failure of a high profile financial institution.
Post-World War I recession 1918– Hyperinflation, war reparations and high unemployment
Recession of 1953 - Korean War inflation. The beginning of the Cold war and the arms race
Recession of 1957 - decline in the purchases of raw, agricultural and mineral materials.
Oil crisis 1973 - OPEC tripling prices on oil and the cost of the Vietnam War.
1980s recession - 1979 Energy Crisis and inflation
1990s recession - Decrease in manufacturing
2000s recession - dot.com bubble!
Now thanks to the businessdictionary.com I have a definition for each.
Recession
Period of general economic decline, defined usually as a contraction in the GDP (Gross Domestic Product) for six months (two consecutive quarters) or longer. Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression. Although recessions are considered a normal part of a capitalist economy, there is no unanimity of economists on its causes.
Depression
Lowest point in an economic cycle characterized by (1) reduced purchasing power, (2) mass unemployment, (3) excess of supply over demand, (4) falling prices, or prices rising slower than usual, (5) falling wages, or wages rising slower than usual, and (6) general lack of confidence in the future. Also called a slump, a depression causes a drop in all economic activity. Major depressions may continue for several years, such as the great depression (1930-40) that had worldwide impact.
Well now isn’t that comforting. I feel after reading that this could be more than your average recession. Why lets take the BCarol depression test!
Do you find that you are budgeting tighter due to the price of goods? _____ yes ____no
Has your home worth maintained value or increased in value? _____ yes ____no
Have your raises increased at the equal rate of inflation? _____ yes ____no
Do you suffer from lack of confidence in the future of employment and the stock market?
_____ yes ____no
Have you or do you know more than 3 person who have applied for unemployment in the last six months? _____ yes ____no
Do you see yourself buying a car within the next 12 months? _____ yes ____no
If you answered yes to all of the above this is a depression. If you answered yes to four or more worry, panic and pray! If you answered yes to three or less you have got it good so thank God! Remember the Great Depression lasted for 10 year and the Long Depression for 60 years.
We have already had two consecutive quarters of recession. Seems to me that there is a value in words… as my grandmother said there were hard times. Gram I am about to learn first hand….
1 comment:
The main difference between a recession and a depression is a general fall in prices. Both are characterized by a fall in demand and production, but only in a deperssion is that joined with deflation. Hence, the question about tighter family budgets should not include a reference to higher prices.
an economist
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