What is the Difference Between a Recession and a Depression?
So now that we have been in a recession for 16 months, at what point is it considered a depression? Seeing as it took the nation's top economists 11 months to admit we were in a recession, my guess is that we will probably need to be in a recession for several years before they admit it is a depression. Of course that is IF it doesn't turn around. If the United States can dig itself out of this mess soon, it won't become a depression at all and that would be great.
So with all this talk about recessions and depressions - what is the difference. Have you heard the joke that a recession is when your neighbor loses his job and a depression is when you lose yours? It isn't that funny though. To put it simply a depression is more severe than a recession and lasts longer.
Technically speaking the United States needs to have a decline in Gross Domestic Product (GDP) for two or more quarters of less than 10% for it to be called a recession. A depression would show a decline of more than 10% for at least four quarters. But it took almost four quarters for them to admit we were in a recession. My guess is that if the US were to fall into a depression, they wouldn't admit it until after the fact, once we started to climb out of it.
Of course there are other factors beside just whether or not the GDP declines. There also needs to be a decrease in industry and job loss and the need for public assistance needs to increase. You would naturally see that less of a decrease in job loss and industry would mean recession, while more severe drops would mean depression. Recent unemployment rates of over 10% would typically signal a depression, but yet we are still in a recession only. As you can see there are a lot of factors that go into the if's and when's of recessions and depressions. It can be quite confusing to the average person (I don't understand all the ins and outs of it either) and experts tend to disagree on these topics plenty.
What I see as a positive of everything the US has gone through is that recessions are fairly common events for countries. There are natural ebbs and flows of everything, over the course of history recessions are normal events that every country goes through and they usually resolve themselves fairly quickly. Depressions are much rarer for all countries, although they are harder for a country to come out of. The signs are good that the US won't actually fall into a depression and for that I am thankful.
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