Recession vs. Depression

One of the top stories in the Wall Street Journal today is a report on Greek GDP growth:
Greek GDP Contracts Again
– Stelios Bouras and Philip Pangalos, WSJ, 8/13/2012

It fell again. This quarter by 6.2%. If you want to know what a seriously screwed up economy looks like, then look no further than Greece. Greece is an economic horror story.

You think we got it bad in the United States? Try comparing us to them!

The Tale of Greek GDP

GDP, Gross Domestic Product, is the measure of the strength of a nation’s economy.

It is usually expressed as a percentage of annual growth by quarter. A positive number means an economy is growing. A negative number means an economy is shrinking.

As can be seen in this WSJ chart, Greece was hit a little slower than the United States in 2008 and its fall was not quite as hard.

Like the United States it tried to come back in late 2009 and then the bottom completely dropped out.

Since January of 2008 Greece has had only 3 quarters of positive GDP growth and none of them were even close to +1%.

Greece has had two strait years of negative GDP growth averaging more than -6%!

The Tale of United States GDP

Percentage Growth of U.S. GDP (Source: U.S. Bureau of Economic Analysis)

The United States has done much better than Greece. 2008 was a very rough year for the U.S.  but we bounced back to positive GDP growth by the 3rd quarter of 2009.

The U.S. hit rock bottom in the 4th quarter of 2008 at -8.9% GDP growth. That is deeper than Greece’s worst quarter so far, but not by a lot.  However, the U.S. bounced all the way back to a healthy +4% GDP growth a year later in the 4th quarter of 2009.

GDP has fallen off since then and been spotty. It fell to a dismal +0.1% in the first quarter of 2011 but roared back to +4.1% in the 4th quarter of 2011. It has nosedived since then.

Recession vs. Depression

The traditional definition of a recession is two strait quarters of negative GDP growth. The United States had 4 strait quarters of negative GDP growth in 2008 and 2009. That marked the deepest darkest days of the Great Recession.

During that time the mortgage bubble collapsed; the stock market crashed; the largest bank failure in history occurred; 7 trillion in wealth simply evaporated away; Fannie and Freddie cost U.S. taxpayers hundreds of billion; TARP was created to prevent a full scale depression and America permanently lost about 7 million jobs.

We still haven’t recovered. If we fall off the fiscal cliff it is likely we will drop back into recession in 2013.

There is no agreed upon definition of a depression. Some say it is when GDP drops by -10%. Others say it is a deep and prolonged recession.

Greece has averaged over -6% quarterly drops in GDP for 8 strait quarters… two full years. Its unemployment rate is over 22%. It’s foreign trade is practically nil. Retail sales are off by -12%. Industrial production still remains in negative territory.

Greece’s economy hasn’t been healthy since before 2008. And that is with bailout after bailout of the Greek economy by the ECB, the IMF and European Stability Fund.

The WSJ politely calls that a recession, but that is a full-scale depression folks!!

Conclusions

The U.S. was in a deep recession in 2008-2009, but probably not a depression. The U.S. has had 3 strait years of positive GDP growth. It is very weak growth, but it is growth. Our unemployment is 8.2%, almost 1/3rd that of Greece.

We are still struggling to dig ourselves out. The fiscal cliff represents a serious threat to the U.S. economy in 2013. We are already teetering on the verge of recession again and it won’t take much to fall back down.

The United States isn’t anywhere near the economic basket case that Greece is. We can be thankful for that.

But if we do not fix the fiscal cliff and fix middle and longer term debt we are not many years away from economic Armegeddon.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Aug 13, 2012, in Business, culture, Debt, economics, Greece, Life, news, Opinion, Politics, Thoughts. Bookmark the permalink. 5 Comments.

  1. Greece is doomed. They would have been better off to have bitten the bullet two years ago and left the Euro for the big boys. Yesterday I read that Spain had exactly three realestate transactions in the last quarter. Europe is in serious trouble.

    • For sure…things are not looking good over there for either Greece or the rest of Europe.

      • The Bank of England uses the definition of depression as not surpassing the prior peak’s GDP. England by its own bank’s convention is in a GDP and jobs depression. Surely Greece is. In the US GDP is up in real terms from the prior peak, but we have a jobs depression like you say 7 million destroyed jobs. I think Romney and Obama economic plans are all garbage, but I cannot blame them, I do not have a clue on how to right the ship. I certainly do not look to the economic prostitutes the candidates surround themselves with. It will be interesting to see the dance Romney and Ryan play. Ryan properly supported TARP to prevent depression, and he supported GM bailout because there is a big Chevy plant in his hometown, yet Romney is opposed to those. Ryan spins to the right in electoral mode, but did the practical governance thing as Congressman, for which he will now be hanged. Our politics is sicko.

      • In an Op-Ed in the Washington Post a couple days ago, writer Matt Miller said this:
        “The truth Ryan and Romney won’t tell — which explains the staggering debt in Ryan’s plan — is that taxes need to rise as the boomers retire. (The truth Democrats won’t tell is that raising taxes on the rich alone won’t suffice.)”

        Miller is onto something… but the near-term economy needs to be fixed first.

      • Randel… btw…
        I just checked the US quarterly GDP in terms of chained 1987 dollars from Q1 2006 thru Q2 2012.

        It shows that we inched above our previous GDP peak of $13.326T in 2007Q4 in 2011Q4. In that quarter we hit $13.441T.

        So by the Bank of England’s definition of depression, ours lasted 4 years! We just emerged from it in the last quarter of 2011.

        I did a little more digging into the meaning of “depression” and discovered some interesting things that I might write about sometime.

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