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Is America in a Recession or a Depression?

March 26, 2011 3 comments

Signs are Everywhere

In the hostel in Madison late one night a few of us were talking about the affairs of the day. I brought my reason for travelling-that is, documenting the depression in America. I was then asked “why do you think this is a depression?” I realized somewhat sheepishly that I have never publicly defended this point of view. So I will now. The available literature is somewhat unclear on the definitions of either term. But all the literature seems to center on the health of the Gross Domestic Product (GNP). But, I would argue that in an economy that has seen tremendous gains in productivity without the need to hire more workers, and that is capable having a “jobless recovery” as we are now, has to come up with a better definition, one that more accurately reflects the human costs of an economic crisis such as this.

I would suggest that we look instead at the true unemployment rate, at the foreclosure rate, at the bankruptcy rate, and at the rate at which small businesses are being forced to close their doors, among other indicators. We could also look at increases in the use of the social safety net such as food stamps, and the increase in homelessness.

A February Gallup poll finds that the official unemployment rate is at 9.8%, which is already quite high, but as we know, the official rate consistently understates the problem. It does not count the 99ers who have exhausted their benefits without finding work, or other “discouraged workers” who have simply given up. It doesn’t count the under-employed worker who lost a job that paid a healthy living wage but now works part time for far less. And it does not count the small business person who has had to close up shop and can’t find any paid work. I don’t know what the exact figure would be if these people were included in the unemployment rate, but I think it would be fair to say it would triple, giving us a rate of 29.4%.

A recent Real Estate Investors Daily states that the foreclosure rates have actually climbed in 2011 from a already alarmingly high rates in the last several years, and warns that “while we are seeing some markets in the US showing signs of “hitting bottom” and some are evening saying some markets have begun a “recovery“, I think we should be very slow and cautious to say the worst is behind us. Perhaps for those markets that had extremely high concentrations of the foreclosure activity (Nevada, Arizona, California and Florida) most of the damage may be done, but for other markets foreclosures are going to continue to put downward pressure on home prices.”

As for personal bankruptcy rates, numerous sources state that they are at a five year high and expected to rise in the coming year. Multiple sources also state that the poverty rate has gone up substantially, and this is poverty defined by an antiquated metric that does not reflect the actual cost of living in the 21st century.

That is why I am calling the economic climate in March 2011 a depression, and not the “great recession” as it has been termed. I may not be an economist, but there are some that agree with me. Columnist Jeff Cox quotes economist David Rosenberg in a 2010 article “Positive gross domestic product readings and other mildly hopeful signs are masking an ugly truth: The US economy is in a 1930s-style Depression, Gluskin Sheff economist David Rosenberg said Tuesday.” And he is not the only one to say so. The fact that any economist is using the term depression, given the emotional charge of the word and the deeply conservative nature of that profession, should give credence to the feeling that is already shared by millions of Americans.

http://realestateinvestordaily.com/foreclosures/us-foreclosure-rate-and-mortgage-delinquency-rate-continues-to-rise/

http://www.gallup.com/poll/145922/gallup-finds-unemployment-slightly-january.aspx

http://www.mybanktracker.com/bank-news/2011/01/05/personal-bankruptcy-filings-reached-5year-high-2010/

http://www.cnbc.com/id/38831550/Economy_Caught_in_Depression_Not_Recession_Rosenberg

 

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