Posts Tagged ‘Depression’

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The Concept of a “Super Depression”

Tuesday, June 23rd, 2009

Please note; some will find this post disturbing

I would like to call your attention to the article titled “A S&P500 Target of 100?” which is found under the “Investor” heading here:

http://www.economicgreenfield.com/prosperitybypencom-directory/

With the S&P500 currently at 893.72, I am sure that many will find the mere notion of the 100 level to be highly unlikely if not outlandish.  However, I would point out that our current economic situation is exceedingly complex, and that any further economic weakness could play out in an unpredictable fashion.

As indicated in the article, if the S&P500 were to fall to the 100 level the accompanying economic situation would likely be dreadful and chaotic.  It could very well represent the biggest challenge our nation has ever encountered.

Such a situation, if it were to occur, could be categorized as a “Super Depression,” which I would define as a severe Depression embedded with highly complex, difficult-to-solve problems.

In future posts, I will likely further comment on the prospects of a Depression and/or ”Super Depression.”  From my perspective, on an “all things considered” basis, both are (most unfortunately) possibilities.

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For those who haven’t yet read this site’s disclaimer, please see the “Special Note” here:

http://www.economicgreenfield.com/a-special-note/

SPX at 893.31 as this post is written

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How Can We Go Into a Depression?

Tuesday, June 23rd, 2009

As previously indicated, in this post:

http://www.economicgreenfield.com/2009/06/19/current-economic-forecasts/

most mainstream economic forecasters as well as many other financial professionals believe that “the worst is behind us” as far as economic damage.   It certainly would be nice if this were the case.

However, for a variety of reasons, I continue to believe that while it is possible that “the worst is behind us” there is more likely to be more damage ahead.  There is an array of serious problems, as well as various indicators that indicate potentially severe economic weakness ahead.  Any further economic weakness could certainly push the economy from a “severe recession” into a Depression. 

The way I view it, there are a range of various scenarios that can play out from here.  On the one end of the spectrum is the above-referenced mainstream economist consensus, one of gradual improvement.  On the other end of the spectrum is that of continued economic weakness that has the potential to build upon itself.

A question arises as to how continued economic weakness could happen, both from a fundamental basis, as well as a quantifiable one.  The situation is highly complex and there are many drivers.   Continued economic weakness, assuming it will happen, would likely “play out” in a very unpredictable fashion.

As a reference to our current situation, I would point out the writings in the “Investor” section, which provide some quantifiable aspects.  The writings in the “Articles” section will provide some other background as well.  They can be found here:

http://www.economicgreenfield.com/prosperitybypencom-directory/ 

SPX at 897.33 as this post is written

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Are We Avoiding a Depression?

Monday, June 22nd, 2009

Perhaps the most common refrain heard with regard to our current economic situation, and why it won’t become a Depression, is that we as a nation have been proactive and aggressive in “managing” this period of economic weakness.

This theory, more or less, has the following generalized (and summarized) structure:

  1. There has been rigorous research conducted on the causes of The Great Depression.
  2. Ben Bernanke is widely proclaimed as an expert on The Great Depression era.
  3. Through the knowledge derived through the extensive research of The Great Depression, as well as Ben Bernanke’s expertise of the era, we (as a nation) have a thorough understanding of the causes of The Great Depression, and how that period could have been better managed, if not avoided either fully or in part.
  4. During our current period of economic weakness, widely called “The Economic Crisis” (or “Financial Crisis”), we (as a nation) have been very proactive in deploying various intervention measures that would have avoided The Great Depression and therefore will act to help us avoid a Depression.

I question a variety of the assumptions above.  Additionally, and perhaps most importantly, is our current economic predicament analogous to that of The Great Depression?  While there are certain similarities, there appear to be notable differences as well.  Plus, just the time differential alone would appear to make comparisons difficult.

If the two periods are fundamentally different, why are people apt to compare them?  While this is difficult to answer, it may be (at least in part) because Americans have few periods of severe economic weakness to reference, especially over the last 100 years or so.  If this is correct, it may also call into question the appropriateness of comparisons between this period and The Great Depression.

With regard to whether we, as a nation, have a thorough knowledge of The Great Depression, has been questioned by some.  If our current period of economic weakness is not comparable to that of The Great Depression, it becomes more of an ”academic question” as “lessons learned” from The Great Depression would not necessarily be applicable to the situation we now face.

Furthermore, if our current period of economic weakness is not comparable to that of The Great Depression, the main concern becomes whether our intervention efforts, that purportedly would have avoided The Great Depression, will help us avoid going into our own Depression.

As one can see from the above, I think there are considerable questions that can, and should, be raised with regard to the widely held aforementioned theory and generalized structure presented.

SPX at 904.99 as this post is written

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Are We In a Depression?

Monday, June 22nd, 2009

One of the questions that seems to be popular since the economic events of 2008 is whether we are in a Depression.  As such, for the next few posts I will be commenting on the topic.

Here are two links that indicate that we are not in a Depression:

http://seekingalpha.com/article/142831-great-depression-ii-it-s-not-even-close?source=email

http://www.calculatedriskblog.com/2009/06/update-what-is-depression.html

Yet, as indicated in this following link, the rate of decline in various measures seems to indicate that our experience to date at least matches, if not exceeds, that of The Great Depression.

http://www.ft.com/cms/s/0/b31c06a2-5a7a-11de-8c14-00144feabdc0.html

So, as seen above, there seems to be contrasting measures regarding our current economic weakness.  At this point, most in the mainstream use the term “severe recession” to classify our current economic predicament.

In my opinion, on an “all things considered” basis, I think the “severe recession” classification is apt, but one could also strongly argue for using a “mild Depression” tag at this point in time.  The Unemployment Rate and GDP decline seem to be cited as the predominant statistics in determining whether a Depression exists.  While it is true that both of these measures are not near those that would indicate a Depression, there are an array of other measures that have undergone severe declines and currently stand at (or near) multi-decade lows.  As well, it just seems like there is an extraordinary level of stress evident from a fundamental perspective that is far out of the ordinary even for “tough times.”  

Regardless of the economic classification used, I think the more important issue is the characteristics of the economy; the underlying problems and how easily they can be solved; and the economy’s future trend – either recovery or further decline.  Of course, whether we are on a path to Sustainable Prosperity, as well as associated issues, should be considered.

SPX at 921.23 as this post is written

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