Are we now in a depression?
The head of the International Monetary Fund says the world's advanced economies are in a depression. Dan Grech breaks down what exactly a depression means and whether we are in one.
A tourist takes a picture near life-size bronze statues depicting men standing in a line during the Great Depression at the Franklin Delano Roosevelt Memorial in Washington, D.C. (Mark Wilson/Getty Images)
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KAI RYSSDAL: You know, it wasn't all that long ago that we were arguing over whether the economy was in a recession. That debate ended at the beginning of December.
But this morning, the head of the International Monetary Fund gave some people a start. He said the world's advanced economies are already in a depression.
We asked Marketplace's Dan Grech to find out, a) If that's true; and b) If it is, what does it mean?
DAN GRECH: If you ask economists whether we're in a depression, most will answer like Mark Zandi at Moody's Economy.com.
MARK ZANDI: No. At least not yet.
But once in a while you'll come across an economist who says this:
PETER MORICI: Yes, we're in a depression. We're not in a normal business cycle. The economy will not easily recover from the slump that it's in.
That's Peter Morici, a business professor at the University of Maryland. He first said we're in a depression back in December.
PETER MORICI: We're in a prolonged and sustained contraction in economic activity. The economy is shifting down and not coming back. That cannot be fixed, even with a lot more government spending.
Most other economists, like Mark Zandi, say it's just too soon to call this downturn a depression.
ZANDI: Well, a depression has to be extraordinarily severe, so at least double-digit unemployment. It has to be very broad-based, across all industries, occupations, regions of the country. We're getting close to that. But also very long.
At least five years, he says.
Economists have no established definition of a depression. The Bureau of Economic Research, the group that officially declares recessions, doesn't even use the term. Beyond the plain figures, however, there's another factor at play.
Again, Mark Zandi.
ZANDI: Sentiment is a key part of a downturn. I think you go from a bad economy to a recession because people lose confidence. And you probably go from a recession to a depression because people lose complete faith.
Zandi says he hopes recent government initiatives like the bank bailout and the economic stimulus package will help restore some faith.
I'm Dan Grech for Marketplace.
Comments
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From Jonestown, NE, 10/06/2009
Actually we are in double digit unemployment. Look up "U6" unemployment. I believe it is around 16% right now. The government's official "unemployment" rate is false and misleading, and is used as a propaganda device to keep people calmer.
From San Bernardino, CA, 05/22/2009
Recession is an economic term and depression is a political term. Thats why depression is so difficult to define. Reporting a recession is like coordinating an orderly evacuation due to a fire alarm. Depression is screaming 'FIRE' in a crowded theater.
From Longview, TX, 03/03/2009
YES THERE IS NO DOUBT THAT WE ARE IN A SEVERE RECESSION. THE QUESTION IS, WHAT DETERMINES A DEPRESSION BY TODAY'S STANDARDS. HOW LOW DOES THE DOW HAVE TO DROP. HOW LOW DO THE S&P 500 INDEX HAVE TO GO IN TODAYS SOCIETY TO HIT THE MARK OF A DEPRESSION. I THINK SEEING THE CONTINUAL SHIFT OF POWER FROM THE STATES TO THE FEDERAL GOVERNMENT GIVES US A BROAD INSIGHT THAT WE ARE OR ARE HEADING INTO SOMETHING WORSE THAN YOUR CLASSICAL RECESSION. IN 2010, UNEMPLOYMENT NATIONWIDE MIGHT SURPASS 13%. california and michigan may go to 18% WE NEED TO BE VERY WARY OF THIS
02/28/2009
I agree with Rob, you said you wanted "change".....well you got it. Stupid never did say what the change was, you just assumed it was good. Don't get me wrong, there are things that should have been done differently over the last few years, but this is much worse. Our taxes are going shy high to save corporations, not the people. Enjoy your change, I'm moving out.
From Denver, CO, 02/26/2009
A recession is when your neigbor loses his/her job a depression is when you lose yours. That being said, we are all in a recession and many in a depression.
From Arlington, TX, 02/25/2009
African-Americans are "already" in a depression as unemployment is already over 11%. We the people are to blame ultimatley for allowing this same leaders to be re-elected year after year and they have not been doing there jobs. The economy has been in trouble for many years actually before this meltdown. This country has been pretty much like a fake movie set with fake prosperity. And so many living beyond their means.Mercedes and privtae schools are NOT for the average working joe!! If you are a couple making $100,000 a year, YOU ARE NOT RICH, YOU DON'T SPEND IT ALL!! YOU LIVE ON A LITTLE OVER HALF AND SOCK AWAY THE REST!! In many other countries this would not be tolerated. Obama is not baby Jesus and can't fix it overnight! You can have have a great leader who's havnds are tied by a sorry out-of-touch congress to do battle with!! I haven't heard our Govenor even address the state of Texas to even acknowledge the economic downturn! All he does is go around beg for money the the goverors mansion! Yeah, the 2nd depression is here!
02/21/2009
Come on, folks. You wanted "change" didn't you? That's what you said you wanted in November, and that's what you have.
From junueat, AK, 02/20/2009
Invoking God is the last stand of the futile mind.
Its too Palinesque for words
From Greenfield, WI, 02/18/2009
I'm not an economist,but I am quite certain we are headed for a depression if we aren't there already. Never put your faith in people, things or government and you are sure to never be disappointed. Put your faith in God, because during these hard economic times he's the only one whose investment is a sure thing!
02/18/2009
Heres another idea if companys would stop stealing people's moeny and be truthful about there business practices then it might help to; rich people make too much money for there own good and is very hurtful too take advantage of people like that. I also think that the government shoul not give tax cuts to the rich and and fine companies if they move seas and make them keep jobs here that is part of the problem
02/10/2009
Indeed, why is it the fault of the consumer, that he or she lost faith? How about, its the fault of the providers, who no longer provide something worth buying...or investing in, which leads people to investing instead in vague Ponzi schemes like the bad loans of the Savings and Loan, and again the same thing in the subprime mess?
Its one thing to get fooled once, but twice over a decade the best investment is bad loans getting shuffled to the next availible sucker?
From san jose, CA, 02/09/2009
I remember when I first learned that the Fed had an emergency rate cut back in January 2008 that was not even scheduled. That made me realize that we were probably in a recession. And of course it wasn't declared until 11 months later. However, those at the Fed with all their data knew something was going wrong fast.
Now I feel that with the 700 billion first TARP package and now the large $800+ billion stimulus package, plus all the other extraordinary things the Fed is doing with commercial paper, etc. We are in serious trouble. I really think we are in a depression (not a great depression yet). Even though no one wants to say the D word. I think later it will be called such.
The jobs that are disappearing are not coming back for a long time. Even with the houses down several %, I feel the homes are still too expensive in my area of San Francisco bay. I feel home prices should come down lower to a point where a normal couple with normal income can afford it.
john@sjebcdmz.com
From Prescott, AZ, 02/09/2009
People lose confidence in something when that something fails and/or betrays them. Wall Street has betrayed us, the government has failed us, so we would have to be dumber than rocks to hold any faith or confidence in either. At this point, and for the foreseeable future, it is these institutions that must restore public confidence by doing the things they should have been doing and not doing the things they shouldn't be doing. People simply are not in a place where they are willing look at what they've lost and just shrug and say, "Oh well, never mind."
From sterling htgs, MI, 02/09/2009
Again its the peoples fault "people loose confidence, faith. You know what, if you lost your job, your house maybe your confidence & faith might flag.
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