by Diane Wilson
We don't know if we're in a depression, because nobody actually agrees on what a depression is, says The Globe and Mail. Ambiguity has come to characterize the 21st century.
Recent wars are fought not against countries with clearly delineated borders, but against amorphous groups lurking in mountains and caves. Similarly, the economic enemy is hard to pin down.
Clearly, the US and Canada are in recession, but what about depression? According to Professor Peter Morici of the University of Maryland, the US is likely in a depression right now. A depression is defined in many ways -- it can be a downturn of three years with a 10% drop in economic output and unemployment above 10%, or a sustained recession during which people actually hock their assets to make ends meet.
Since the States is only 15 months into this mess and unemployment is not yet 8% and output is only down 6.2%, the Depression parameters don't work. During the Great Depression, a quarter of the economy evaporated by 1933 and a quarter of the workforce lost employment. But, last year's stock market was the worst since 1931. And, this just does not feel like other recessions. Bring in Prof. Morici's other definition of a depression -- a recession that "does not self-correct" because of structural problems like bank credit and trade deficits. Which makes me think of how Uncle Sam has come to the rescue of banks, autos and insurers.
We are getting weary, and we need certainty. What if we assume the worst and call it The Little Depression, a limited recession characterized by structural problems? This way, we know where we are at. During this downturn, people will learn to save and eat at home. Stocks will get cheaper, but not that much cheaper. Companies will shore up their balance sheets, and exploit good opportunities. Baby boomers will learn how and why to buy bonds. But it will end, and as we exit this period, de-levered personal and corporate finances should stand us in good stead.
Perhaps the best news about The Little Depression could be that we do everything much faster now. I know I could be wrong about all of this, but I am beginning to think it will not take as many years to fix the mess. We just need to get out of the way, give President Obama and his team a chance to work their magic, and be patient. And then, boy oh boy, watch the sidelined money return from money market funds and treasuries.
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