“We are likely enduring a depression today”

Summary:  As a follow-up to yesterday’s post (A situation report about the global economy, as the flames break thru the firewalls), we have the words of a leading economist — one whose forecasts have been among the best during the past few years.

An excerpt from “Some Inconvenient Truths” by David Rosenberg, 26 January 2009 (no online copy available):

How is a depression defined?

It shouldn’t come as any big surprise that with such a provocative title, we would be saddled with questions as to how an economic depression is even defined. Of course, most portfolio managers still don’t know that a recession is not defined as back-to-back quarters of negative real GDP prints (which we had neither in 2002 nor 2008) but instead the timing of the peaks in real sales activity, employment, industrial production and organic personal income growth.

We are likely enduring a depression today

As for depressions, there is no official definition, except to say that they have existed in the past. There were no fewer than four in the nineteenth century, one in the twentieth century, and we are very likely enduring another one today. Though this current one is muted by the fact that most countries have an elaborate social safety net (deposit insurance, unemployment benefits, welfare, and socialized health care).

Depressions can last anywhere from three to seven years

Depressions are basically long recessions – they can last anywhere from three to seven years, while historically cyclical recessions last 18 months – and tend to follow years of leveraged prosperity of Gatsby-like proportions. …

Depressions marked by balance sheet compression …

We have no idea when the credit cycle will hit bottom …

$6 trillion in private sector debt must be eliminated …

{We are} Still in the early stages of the credit contraction …


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To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest these days:

Some posts discussing solutions to the financial crisis:

  1. A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
  2. Slow steps to nationalizing the US financial sector, 7 April 2008 — How this will change our society.
  3. Slowly a few voices are raised about the pending theft of taxpayer money, 21 September 2008
  4. How should we respond to the crisis?, 24 September 2008
  5. A solution to our financial crisis, 25 September 2008
  6. The last opportunity for effective action before disaster strikes, 3 October 2008
  7. Prof Roubini prescribes first aid for America’s economy, 4 October 2008
  8. Effective treatment for this crisis will come with “The Master Settlement of 2009″, 5 October 2008
  9. Dr. Bush, stabilize the economy – stat!, 7 October 2008
  10. The new President will need new solutions for the economic crisis, 9 October 2008
  11. A brief note about our financial system: Intermediation, disintermediation, and soon re-intermediation, 16 October 2008
  12. New recommendations to solve our financial crisis (and I admit that I was wrong), 23 October 2008
  13. A look ahead to the end of this financial crisis, 30 October 2008

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