Recession? or Depression?

(My Original Blog Post: http://ping.fm/PHbiv)

RECESSION? OR DEPRESSION?
What's the difference between a recession and a depression? What's a recession? How do we know if we're in one? These are questions we all want answers to during these turbulent economic times.  A glib definition is, when your neighbor loses his job it’s a recession.  When you lose your job it’s a depression. The standard newspaper definition of a recession is a decline in the Gross Domestic Product GDP for two or more consecutive quarters. However, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected. The Business Cycle Dating Committee at the National Bureau of Economic Research NBER provides a better way to find out if there is a recession taking place. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. By this definition, the average recession lasts about a year. What goes up must come down.
 
Periodic recessions are a natural part of any nation's economic cycle. Most analysts pointed to fears surrounding the United States economy and a possible recession as the reason for the drop. Three days later, news outlets were already reporting a new economic stimulus package designed in part to try to prevent a recession. This isn't the first recession news in recent memory. The old saying goes that economic forecasters were invented to make meteorologists look accurate. When the weather reporter predicts snow, one can look outside to see if the forecast is correct. But when an economist predicts a recession, the only verification is the opinion of other economists. Unlike snow, no one can be sure when a recession has begun, or when it has ended. Interest rates usually fall in recessionary times to stimulate the economy by offering cheap rates at which to borrow money.
 
Another indicator of a recession is a sudden rise-at least two percentage points-in the unemployment rate. Example: The general business recession caused high unemployment in the rust belt and low interest rates throughout the country. Whether a recession develops into a severe and prolonged depression depends on a number of factors.
 
A depression is a severe economic downturn that lasts several years. Fortunately, the U S economy has not experienced a true depression since the market collapse in 1929.   
 
The Depression of the 1930’s was aggravated by poor monetary policy. The "New Deal" created many government programs to end the Depression, but government programs alone could not end it. We probably won't see a depression like that again, simply because the government has learned how to avoid it. Many laws and government agencies were put in place because of The Great Depression with the express purpose of preventing that type of cataclysmic economic pain. It was the longest and most severe depression ever experienced by the industrialized Western world.
 
 The Great Depression began in the United States but quickly turned into a world wide economic slump owing to the special and intimate relationships that had been forged between the United States and European economies after World War I. The Depression hit hardest those nations that were most deeply indebted to the United States, i e , Germany and Great Britain. The Great Depression had important consequences in the political sphere. In the United States, economic distress led to the election of the Democrat Franklin D. In Europe, the Great Depression strengthened extremist forces and lowered the prestige of liberal democracy. Prior to the Great Depression, governments traditionally took little or no action in times of business downturn, relying instead on impersonal market forces to achieve the necessary economic correction. After the Great Depression, government action, whether in the form of taxation, industrial regulation, public works, social insurance, social-welfare services, or deficit spending, came to assume a principal role in ensuring economic stability in most industrial nations with market economies.
 
Many factors can cause a recession to slip into a depression.  Not the least being greedy CEO’s and inattentive members of congress.  Probably the quickest, but least desirable, way out of a depression is war.  WW2 is a perfect example.  Economists cannot agree on the exact way to end a depression as no democracy has existed this long, so they have no road map to follow and are more or less feeling their way along. 
 
There are two current theories under debate. 1) The unprecedented infusion of resources into the depressed economy will result in accelerated boom-and-bust cycles. This may result in the dissolution of our economic system as we know it. Or: 2)  The unprecedented infusion of resources into the depressed economy will result in a long-term, painful recovery of our economic system. In either event, there does not seem to be a painless, "quick" fix that will make everyone happy and prosperous.