I don't claim to be the smartest man in the room but I believe that we've been in a depression for two years. I have no academic laurels to base that on, but then again you don't need to be a doctor to diagnose a gunshot wound.
The definition of a recession is: "Period of general economic decline, defined usually as a contraction in the GDP 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." (Business Dictionary)
"With the industrial world already in outright recession and the emerging world navigating toward a hard landing (growth well below potential), I expect global growth to be flat (around -0.5%) in 2009.
"This will be the worst global recession in decades as the fallout of the most severe financial crisis since the Great Depression took a toll first on the U.S. and then--via a variety of channels--on the rest of the global economy." Nourial Roubini, "Forbes Magazine"
I see this same description in all the financial trades, "Worst global recession in decades as the fallout of the most severe financial crisis since the Great Depression." Well, if it's the worst financial crisis since the Great Depression then what do you call this that we are in now? You can't have it both ways. You can't say the worst storm since Katrina and then when asked reply, "You mean it's a hurricane?"
Oh no, no, no, not a hurricane, it's just a tropical storm with sustained winds over 74 miles per hour, but not a hurricane.
"A depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by economists as part of a normal business cycle.
"Considered a rare and extreme form of recession, a depression is characterized by its length, and by abnormally large increases in unemployment, falls in the availability of credit-- quite often due to some kind of banking/financial crisis, shrinking output and investment, numerous bankruptcies-- including sovereign debt defaults, significantly reduced amounts of trade and commerce-- especially international, as well as highly volatile relative currency value fluctuations-- most often due to devaluation's. Price deflation, financial crises and bank failures are also common elements of a depression." (Wikipedia)
Since 2007 the US GDP has averaged less than a one percent rise per year, over almost three years. Home sales have fallen to their lowest numbers since records have been kept while new cars sales don't equal the number of cars removed from the roads. It sure looks worse than your garden-variety recession to me because those .89 percent average GDP numbers were bought even if not paid for. The cash for clunkers program cost the government $3 billion and then once the program ended new cars sales fell again.
The homebuyers tax credit cost $21 billion and did manage the raise new homes sales to the third worst year on record. Then there is the eight hundred-pound gorilla in the room, the defense budget. It almost seems laughable now that the defense budget in 2000 was only $311 billion and this year is more than three times that much, nearing one trillion dollars. For an economy it is a stimulus though a badly placed one. The US Army was buying super accurate artillery rounds for the everyday low price of $20,000 each and that means jobs for your community. But it is the worst kind of stimulus because once the money is spent all you have to show for it are dead bodies and miscellaneous body parts. Did I mention that we are giving Pakistan a fleet of new F-18 fighter jets?
Then there is the Federal Reserve stimulus where they supply banks with money at .25 percent interest and then bill the Treasury at 4.3 percent interest. This is why the banks and brokerage houses are churning out profits, borrow at .25 and lend out on a Visa card at 19 percent. When you look at all the mitigating factors this economy isn't even treading water.
Then there is the most twisted statistic of all, unemployment. If you leave the military you can draw unemployment but you aren't counted as unemployed. If you want to work full time but you can only find part time work you aren't unemployed. If you use up all of your unemployment benefits you cease to be unemployed and become a discouraged worker. If you graduate from college or trade school and can't find a job take heart because you're not unemployed. You have to have had a job before you can be counted as not having one. See? Isn't that simple? The actual unemployment rate is estimated to be between 17.5 percent and 22 percent, depending on your area.
So far this year the FDIC lists 86 bank failures in the first six months of the year. In 2007 just 3 banks failed; in 2008 there were just 25 bank failures. In 2009 the number jumped to 149 bank failures. So if we were to decide the issue of depression on bank failures alone the answer becomes an obvious yes.
Home foreclosures are still at record levels. 2009 was predicted to be the high water mark for home foreclosures; instead between May 2009 and May 2010 home foreclosures actually increased by 44 percent. The number by itself is shocking but when you consider it is a 44 percent increase from a record high number it is astounding. It depresses the sale price for all homes on the market and over 30 percent of those are forced sales.
They taught us in science that when things cool the contract, except water. Water expands and money is like that, too. Plus, everything runs downhill except for money. So when home prices fall by 30 percent, property tax revenue falls as well. With seventeen million unemployed plus the millions more who are way past unemployed we pay no taxes and we purchase no goods in the stores. We don't buy cars or gas or tires or any of those things which are taxed. We are pushed out of the economy and suddenly government can no longer pay its bills. So the question of why tax rebates to buy new cars and houses doesn't seem to be working becomes painfully obvious.