Here are some interesting parts of the article Recession? Maybe. Depression? Get real.
“Some are even calling this a Depression, and that’s where I think people are going too far. It’s one thing to casually drop the R-word even though the economy has yet to report even one quarter of declining output. But busting out the D-word is dangerous and misguided.
Let’s look at the history books.
It was a lot worse in the 1930s
The unemployment rate skyrocketed during the Depression, peaking at nearly 25% in 1933. The current unemployment rate is just 5%. And that’s only up from 4.5% a year ago. Contrast that with the far more explosive spike at the beginning of the Great Depression – from about 3% in 1929 to nearly 8.7% in 1930, according to the U.S. Bureau of the Census.
Another hallmark of the Depression was deflation, which is obviously not happening today. Wages are rising – albeit by less than many would like.
The main fear is inflation in the cost of food and oil. And there’s reason to believe that inflation pressures may eventually ease since there is a bit of a speculative bubble going on in commodities. Plus, if the Federal Reserve can stabilize the dollar, that could cool off the recent runup in gas and food costs.
Finally, there’s the issue of the stock market. I’ve taken a lot of flack for mentioning the bounceback in stocks since many readers seem to think that what happens on Wall Street does not affect Main Street.
But that’s simply not true. Sooner or later, a healthy stock market will help the average consumer. If big businesses are doing better, they are more likely to hire and pay better wages. A rebounding stock market also means more wealth for investors…and many average Americans still have an important stake in the market thanks to 401(k) plans and other retirement accounts.
Keep in mind that the Depression was kicked into gear, if not necessarily caused, by the stock market crash of October 1929. The massive plunge in the value of an asset, in this case stocks, sent the economy spiraling into its most severe downturn in history.
Economy “dead in the water” but not “plunging”
Recessions result from a slow, gradual slip in the economy. The Depression was a product of a one-time shock that took years to recover from. We simply don’t have that environment today.
“I don’t see many similarities between now and the Great Depression. The economy may be dead in the water but it’s not fair to describe it as plunging. That’s what happened in the Depression. You had a massive contraction,” said Chris Probyn, chief economist with State Street Global Advisors.
And I don’t think that the decline in house prices we’ve seen over the past year is an analogous situation.
Woes in the housing market get a lot of attention. But only a small minority of homeowners are subprime borrowers at risk of foreclosure.
For many people, the decline in housing prices is frustrating, but it is something that can be ridden out. For a lot of people, a house is still a place to live, not a short-term investment to be treated like an ATM machine.
Again, don’t get me wrong. I’m not trying to paint a rosy picture of the economy or minimize in any way the financial hardship that many Americans are suffering through right now. We just need to put things in perspective.”
This is by Paul R. La Monica, CNNMoney.com editor at large. So I went from crazy partisan to realist in only 6 months. It’s hard to be ahead of times.