When Does A Recession Become A Depression?

by | BiggerPockets.com

 Are we in a really bad recession or a depression“mild” depression? Does it matter? At what point do we go from being in a somewhat normal recession to a full-blown depression? Where is that line and how do we know when we’ve crossed it? What is a depression anyway? Does anyone really know?

Recessions are pretty easy to define, two straight quarters of negative growth. There is no disputing that we have done that. But defining a depression isn’t as easy. The economic news today is certainly depressing, but is it, or will it be, a depression? Why do we have such a clear definition of a recession but not a depression? That’s the interesting part!
The term “recession” was created by the Government to describe the economic downturn of 1937. The Great Depression that followed the 1929 stock market crash was so painful that having another depression so soon after it could have been psychologically devastating. When the economy soured it was called a recession, certainly that had to be much better than a depression, didn’t it?
Manipulating the Data
Changing the way something sounds has become a pretty popular game with our elected officials. When something doesn’t look good they simply changed the way it’s calculated so that it sounds better. Preposterous you say? Look at inflation. Remember when inflation was really ugly? Now we have something called “core inflation,” which excludes things like food and energy costs. Wouldn’t food and energy be two things that directly affect the average person? If so, why exclude it? Simple, it makes the numbers sound better.
I feel like this is something that George Orwell wrote about in his book 1984. He described using “Newspeak” as a way of changing the meaning of words so that people wouldn’t have ideas that were dangerous to the state. Isn’t manipulating data the same thing? Are we not in a depression because the government says we’re not?
If It Walks Like a Duck
Depression or not, it feels pretty bad to most people. In many ways how they feel has a direct effect on how things are. When people are feeling confident about their situation they spend money much more freely. When they aren’t so sure they will look to avoid unnecessary spending which, in turn, drags the economy down even more. There is a law of physics that states that an object in motion tends to remain in motion and an object at rest tends to remain at rest. That works with the economy as well.
The Good News
There is good news in all of this bad news. All of the negative events are creating an abundance of opportunity. Whether you are looking at real estate, the stock market, or some other investment opportunities, there are fantastic deals everywhere. I am reminded of the adage that states: be fearful when people are greedy and greedy when people are fearful. A great number of millionaires were created during the Great Depression, so be bold and seize the opportunity.

But if thought corrupts language, language can also corrupt thought.
George Orwell

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  1. There is no definition for a depression. While many are suffering we are no where near a depression. 40% reduction in salaries nationally. 60% reduction in prices (deflation)… These were the events of the Great Depression.

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