1. A recession is generally defined as 2 consecutive quarters of negative growth in the Gross Domestic Product or GDP. It is usually characterized by declining interest rates and higher unemployment. On average recessions last about 6 to 18 months.
2. A depression is similar to a recession in that unemployment rises and interest rates generally decline but is fundamentally different from a recession in that the whole economic regime of the time is questioned. It also tends to last much longer.
3. A recession is when market forces revolt. A depression is when the market demands a revolution.
4. Both recessions and depressions are natural phenomena. All be it very uncomfortable ones like malaria. But systems, all systems, go through periods of growth and regression. We humans do not like going backward, especially we Americans, and so we fight the natural tendency of the market. Whether it’s right to fight it I will leave to another article.
5. So are we in a recession or are we in a depression? If we use the criteria above stated, I would have to characterize the current situation as something approaching a depression. How’s that for riding the fence. Really it’s actually a hopeful statement. I hope that we don’t see another depression because what comes out on the other side is anyone’s guess. Hitler rose to power in the very reasonable and rational country of Germany during the Great Depression. Roosevelt also expanded the government into the lives of everyday Americans during the Great Depression and it has never left. I personally pray that we get out of this thing ok. I kind of like what a writer in the WSJ called the current slowdown. He called it the Great Recession. Let’s hope that it remains so.