The comments below come courtesy of Dave Rosenberg, Chief Economist and Strategist of Gluskin Sheff & Associates.
“A depression is a very long recession. Like the one that lasted from Q4 1929 to Q1 1933 that contained no fewer than six positive GDP quarters and even a 50% rally in the equity market in 1930!
“You know you’re in a depression when interest rates go to zero and there is no revival in credit-sensitive spending. Or when home sales go down to record lows despite record-low mortgage rates.
“The economy is in a depression when the banks are sitting on $1.3 trillion of cash and yet there is no lending going on to the private sector. It’s called a liquidity trap.
“They usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories.
“When almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months, you know you are in something much deeper than a garden-variety recession.
“Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away.
“More fundamentally, in a recession, the economy is revived by government stimulus. In a depression, the economy is sustained by government stimulus. There is a very big difference between these two states.”
Indeed food for thought!
http://www.investmentpostcards.com/2010/08/30/rosenberg-%E2%80%93-what-is-a-depression-anyway/
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