What Is the Difference between a Recession and a Depression?

What Is the Difference between a Recession and a Depression?
While a recession may occur after two consecutive quarters where growth is not evident, depression can occur when there are severe changes in the GNP or Growth National Product.

For example, the Great Depression saw a decline of more than 10% in GDP or Gross Domestic Product.

If you have grandparents or older parents whom you can ask about the 1929 stock market crash in which the GDP fell approximately 33%, they will be able to recount in detail what it was like back then.  Bread lines, unemployment, loss of businesses, individuals losing everything they owned, food stamps, and indescribable hardship.

According to experts, the last recession we experienced was between 1973 and 1975 when the GDP fell close to 5%. 

The Bureau of Economic Analysis states that:  “Real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 2.8 percent in the second quarter of 2008, (that is, from the first quarter to the second quarter).  In the first quarter, real GDP increased 0.9 percent.” 

In addition, Forbes.com stated on September 25, 2008 that: “The government reported August new homes sales shrank by 11.5%, to 460,000 homes, from 520,000 in July, marking the housing market’s slowest pace in 17 years.  The report does not bode well for builders who already face a large glut of tough to sell inventory.  Analysts had expected August sales of 510,000, according to TradeTheNews.com. The average price of a new home sold in August fell by 11.8%, to $263,900, from July’s $299,100.”

You may also wish to peruse an article at: http://www.nytimes.com/2008/03/23/weekinreview/23duhigg.html?fta=y wherein Mr. Duhigg states that “Between 1857 and 1929, while regulators largely stood idle, the American economy swung through 19 national boom-and-bust gyrations that sometimes threatened to wipe out whole industries within months.

But in the wake of the Great Depression, American policy makers began actively managing the economy with a handful of tools, including adjusting interest rates and using massive government spending to spur growth.  Since 1945, there have only been 10 boom-and-bust cycles, most of them much shallower than earlier ones, and the unemployment rate has never topped 9.7 percent.

But as the Internet boom and recent housing bubble demonstrate, even relatively stable periods can be part of a cycle of extreme ups and downs.  The prolonged expansion that just ended had an unusually long run of more than six years. As a result, some are speculating that the crash will be equally drawn out.

Mr. Duhugg goes on to state that “Even if consumer confidence hit rock bottom, that most likely would not be enough, by itself, to cause a depression.  For things to become really dire, the nation’s financial institutions would have to fail at the same time that unemployment began significantly rising.  Only if banks suddenly closed, or it became impossible for companies to access short-term lines of credit, would things begin spiraling out of control.”

This statement is quite prophethic since to date there have been twelve banks that have shut down, the most recent being Ameribank which was taken over by the FDIC.  Predictions are than many more will follow suit.  According to CNN money: “The FDIC insures the assets held by the 8,451 institutions with a total of $13.4 trillion.”