The Next Depression?
August 12, 2010
The experts say most recessions last an average of 18 months. We are getting closer and closer to doubling that with this current recession. At what point do they call it a depression? The Great Depression of the 1930s was very deep; cutting to the core of what America prided itself on. It sure seems like we are quite aways away from something like that, however; the Great Depression had an instant effect after the stock market crash in 1929. Some economies started to recover in the mid 30’s, but most of the world came out of it in the late 30s to early 40s. Some say World War II was the factor in getting us out of the Depression.
I am just wondering who decides when it is a depression. According to Wikipedia, there is no real consensus on what a Depression is. It explains, ‘There is no widely agreed definition for a depression, though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions. Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output). Another proposed definition of depression includes two general rules: 1) a decline in real GDP exceeding 10%, or 2) a recession lasting 2 or more years.
Well, I hate to bring it up, but we are way past 2 years. Obviously most people are still being able to buy groceries and live a fairly normal life. Even though many people are not able to make their house payments, the GDP increased the first quarter by 2.4% and 3.7% the second quarter of this year. That’s a sliver of good news! So, why are we not getting out of this recession? July’s unemployment rate still remains over 10% for Oregon and 9.5% for the U.S. Only 71,000 private jobs were created. That is terrible since private jobs are the driving force to our healthy economy!
Well, I say blame it on the government. Although I believe their intentions are good, they only seem to swing the pendulum way too far the other way. Strict oversight and over regulation will only paralyze our economy further. The good news is that entities like FHA are starting to come around. There is talk that they need to lighten up the oversight. Keeping interest rates down can only do so much, but if a potential buyer can’t get financed, then it doesn’t matter how low the rates are. We do need a balance of oversight and low interest rates. The people who are taking advantage of this market are the investors. Good for them. They will be the ones who will be reaping the rewards in about 20 years. The problem is that there are not enough of them to help us reduce enough inventory to get us out of this mess. The government needs to loosen its grip on the financial systems and stop thinking they need to protect us from every danger out there. The free market will not sustain with Big Brother looking over the shoulder every second. The other alternative? We can be like Europe. Lets keep in mind what made this country the greatest country in history.