One always has the choice of accepting hard truth, or not. One does not have the option of evading the consequences of that decision.

Economic Depression: A Better Definition

“How can you keep talking about a depression,” asks a Dear Reader, “when the economy is clearly recovering just as it should be.”

Ah ha! We’ll explain in a minute.

First, the latest from Wall Street: The Dow fell 18 points yesterday. We’re still not sure whether the final, fading phase of the bear market has begun or not. This bounce took the Dow back to 10,725 on January 19th. It hasn’t seen that level since. Was that it? Was that as high as it’s going to get? Is it down from here on out…until the Dow finally bottoms out somewhere south of 5,000?

We don’t know. We’ll just have to wait to find out…along with everyone else.

Now…back to that ‘recovery’….

It’s true that there are some signs of “stabilization.” The unemployment rate is not getting badder as fast as it was a few months ago. And house prices seem to have stopped falling – for the moment. It’s also true that the economy managed to register positive ‘growth’ in the last quarter…mostly thanks to government spending and inventory restocking.

The trouble is, all of these things are consistent with a depression – especially a depression that the feds are fighting every inch of the way. In the 1930s, there were several years of growth…and there were great years for the stock market too. Then, things fell apart again. The nation ended the ’30s not one penny richer than it had been when it began them.

And Japan has seen some good years and some bad years, too, since its depression began in 1990. Oddly, Japan’s population is falling…so in per capita terms, Japan’s downturn hasn’t really been so bad. Per person, the Japanese got richer over the last 10 years.

It’s also true that here at The Daily Reckoning, we use the term ‘depression’ a bit differently than most economists. Most economists believe GDP growth represents increasing prosperity. They think a depression is merely a recession, with negative GDP growth, that lasts longer and goes more deeply than normal.
Our definitions are better:

A recession is a pause during a period of growth. A depression marks the end of the period of growth…giving the economy a chance to make adjustments so that a new period of growth may begin.

THAT makes real sense, especially compared to “Hope and Change”.  Of course one can also continue to partake of the “H & C” Koolaid.  It’s your call, but don’t come ’round looking for a bail-out!

The rest of the piece has more development and illustration of this principle…it’s well worth taking a look.