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Old 06-04-2018, 06:45 AM
Location: (six-cent-dix-sept)
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i think i learned a recession is 2 consecutive quarters of a bear market and a depression is technically 4 consecutive quarters of a bear market.
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Old 06-04-2018, 08:01 AM
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The 1970's thing was a recession, the 1929 and 2008 things were depressions. Nobody got TARP'd in the 1970's but essentially everything had to get TARP'd [subsidized] (one way or another) in 2008-9...and, btw, still does, today. In 1929 there was no such thing as TARP hence the entire 1930's were "hard times". WWII was what ended that depression. The feds fired up "the war machine" which, when you think about it = government subsidy, which = TARP.
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Old 06-04-2018, 02:46 PM
Location: Silicon Valley
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Originally Posted by nickerman View Post
My unprofessional take on it is that a recession that goes on and on is eventually called a depression. But there is probably much more to it.
If you look at a business cycle, there are 4 periods:

1. Recovery - This is where companies have found the bottom of a business cycle and they stop expecting things to get worse. Companies can begin producing orders again and distributors can start taking stock back in normal quantities in anticipation of customers buying them. Usually in this stage, jobs may not yet be growing, but cuts have stopped.

2. Growth - In this stage, companies have now brought all of their capacity back to full utilization and may be looking to make incremental expansions to fill increased volume requests from others looking to do the same thing. Companies at this stage may require more workers or more machines (build by workers) in order to accomplish this. Usually at this stage interest rates are still low, and capital starts becoming more available to allow companies the means to accomplish their plans.

3. Late Stage - After a time of growth, individual company plans may strip available resources. Good workers may be harder to find. Equipment prices may go up because raw materials are being used faster than they can be replenished. Good workers may demand higher premiums for their time. Companies themselves have more money and start looking to buy other companies to keep growing. This is where inflation generally hits, and the cost of capital begins to go up in terms of raising interest rates. Companies and individuals used to cheap debt begin to be concerned on how much debt they have and the cost of the debt. As this occurs, growth begins to slow. I believe most would agree that the US is currently in this stage.

4. Recession - With most companies no longer able to grow top level sales faster than costs are increasing, companies look to cut costs. With costs cut, demand for goods begins to fall. Unemployment goes up as jobs are lost. Banks become concerned about bad loans. Manufacturing falls and commodity prices begin to fall as well. Demand continues to drop and some companies cut in anticipation of still falling demand, further decreasing demand. Companies look to find bottom....or that base level of demand that won't fall further, and choose to either align themselves along this base demand, or find ways of keeping infrastructure in place for a return to growth. (i.e. 32 hour work weeks).

So a recession is the falling part. It hurts because you'll have an unemployment rate that doubles and there's a period of great anxiety. This is when companies are at the greatest risk for going bankrupt. If too many go bankrupt, the companies that were serving those companies could themselves go bankrupt. Recently, you saw the .com implosion crush not just the worst companies, but also marginal companies that perhaps would have made it, but their customers that weren't paying them either. Unlike mortgages, commercial debt generally has to be renewed every 5 years. In local real estate here, one property that was initially listed at $288 sf had the buyers wiped out as the value dropped too far and they would need to put in too much money to get a new loan for 75% of the value. However, the lender also had made too many late stage loans, and they were wiped out, so the properties went to THEIR lender. The property eventually sold for $60 a sf.

That latter part is the scary portion. If a recession gets out of control, and a bottom cannot be established, all prices will start to grind lower. That's called deflation. If you buy clothes at a retail store, you may go immediately to the clearance section. These are generally last season's fashion. They have gone down in price dramatically in order to be sold. Yet if I anticipate this will happen, I may not buy a shirt I like when it first comes out, but rather wait until it is on clearance. When an entire country does this, it's deflation, and nobody can find bottom because there is insufficient demand to maintain the status quo. Further, just because an asset value falls, does not mean that the debt falls with it. If you buy a new car for $20K on equal payments for 7 years, and 2 years later decide you don't want the car anymore, the debt is likely higher than what the asset is worth. That causes problems for businesses as they are considered insolvent and people will not want to sell to them unless they are paid up front.

So a depression is kindof like a recession that just keeps going and going until some giant stimulus creates enough demand for companies to think they've found bottom or are willing to invest in order to create value for the new demand. Where a recession tends to clobber the most leveraged and the weakest of the herd, a depression can destroy entire, once healthy, industries. To avoid this, the Federal Reserve has recently used supply side economics to offset demand weakness. That is, if you make interest rates cheap enough, someone will find a good use for those funds to create a business of some kind. Enough of those projects, and an economy will return to the growth phase.

The problem is that if the resulting growth and late stage don't produce enough to pay for the initial stimulus it may be covering up a large deficit that could one day produce a monster depression by way of obliterating any value of a country's currency. In the event of this occurring on the dollar, that would have contagion to every country in the world. It would be a currency crisis the likes that have never been seen. All of the banks would go bankrupt. International trade would drop to a crawl. Production inefficiencies would make viable trade impossible in most instances. To see the localized effects, read up on what used to be called Panics in the 19th century. The Federal Reserve has made these obsolete, but the Fed now rides on confidence alone.

In the meantime, buy a bit of physical gold when you can. Don't go crazy with it. Buy it an hope to pass it down to your kids so that they can do the same. No American in living memory has gone through a currency crisis. It's hard to know how much of our recent growth is real vs leveraged, but one can't help but look at all the emphasis banks around the world are putting on stress tests as of late.
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Old 06-05-2018, 06:25 AM
Location: Vallejo
13,441 posts, read 15,050,919 times
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Originally Posted by nickerman View Post
My unprofessional take on it is that a recession that goes on and on is eventually called a depression. But there is probably much more to it.
Two most common definitions:

1) It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.

2) Sustained, long-term downturn in economic activity. Make your own definition of what that means as there is none. A recession is generally considered two consecutive quarters. If so, then something longer than two quarters would make sense.

Historically, there's no real precedence. The Great Depression was about equal with what had been called recessions at times previously. Also historical isn't that relevant in the modern economy. Taken in comparison with some of the recessions in the 1800s, the Great Recession would be more like the Blessedly Short and Very Mild Recession. Worst recession in 70 years, sure. Mild compared with the immediately post Great Depression recessions though. Personally, I'd say something that lasts at least a year and has at least a 10% decline in GDP. The greater the severity, the less duration. A 10% drop in GDP that only lasts a year I probably wouldn't call a depression but if lasted more like three or four years, yeah. A 20% drop in GDP that lasted a year or 18 months I'd probably call a depression.
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Old 06-06-2018, 12:08 PM
Location: Gilbert, AZ
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Originally Posted by Chef Jer View Post
In a recession your neighbor loses their job, in a depression you lose yours.

That's a quote from Harry Truman. Pretty insightful.
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Old 06-06-2018, 02:24 PM
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The best explanation I've heard is that a recession is essentially a price adjustment while a depression is a balance sheet adjustment.
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Old 06-07-2018, 08:50 AM
Status: "Career Changer" (set 3 days ago)
1,020 posts, read 292,443 times
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Originally Posted by Mircea View Post
Most people didn't notice the deflationary period that followed the Inflation of the 1970s, but it was there
That was not deflation (a negative rate of inflation) - that was disinflation (a reduction in the rate of inflation from high to low). The inflation rate was never negative in the 1970's.
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Old 06-07-2018, 01:14 PM
1,029 posts, read 560,388 times
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Originally Posted by hikernut View Post
That's a quote from Harry Truman. Pretty insightful.
HikerNut, in the last two weeks, I've been reading a few pages from the second of Truman's autobiography volumes.
I'll probably keep renewing the library book until I read almost all of it.
I was a boy when I heard of FDR's death. I then believed the vice president (whose name I didn't even then remember), wouldn't fit into that great man's shoes.

I believed that Truman had led the nation correctly, but integrating the military would devastate the Democratic Party; on election night, I believed that Thomas Dewey was going to be our next president.

When we entered the North Atlantic Treaty Organization, I believed we were making a mistake. History has indicated that he was correct.

When he vetoed the Taft-Harley act, I did then believe he was correct; (But I then didn't then appreciate how great of an extent of harm that act has eventually inflicted and continues to inflict harm upon our nation's economy.

I'm browsing through, but not actually reading every word of the few chapters covering topics that are of lesser interest to me. Each year mine, along with the remainder of the world, have had reason to more greatly appreciate Harry S. Truman. I do not consider his presidency as lesser than Lincoln's. Truman was an exceptionally good USA president.

Last edited by toosie; 06-10-2018 at 05:06 AM..
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Old 06-25-2018, 12:43 PM
Location: Independent Republic of Ballard
6,153 posts, read 4,370,834 times
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"Depression" was originally a euphemism for "panic". "Recession" was originally a euphemism for "depression".
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