Is This Beginning to Look Like a Depression?

Not to beat a dead horse, but the litany of bad economic news continues to pile on.  Citigroup, which traded not that long ago for over $55 per share, actually dropped below $1 for a while during trading on Thursday.  The losses at General Motors are so great that this one-time lynchpin of American manufacturing may soon declare bankruptcy.  The Dow Jones Industrials average is now down by well over 50% from its peak in October, 2007.  Remarkably, even free market advocates Alan Greenspan and James Baker talk of either temporary nationalization of major banks or something close to it. . . .  Comrade Greenspan?!?!   

So, with all this dire news, a lot of folks are beginning to wonder if this downturn is something more than your ordinary recession — usually defined as at least two consecutive quarters in which GDP (gross domestic product) declines.  Some are even beginning to say “the d-word” (i.e., depression), a longer and deeper type of recession with at least a 10% decline in GDP, and the abruptness of recent job losses as well as the severity of the banking crisis have certainly set people wondering.  Take a look at this article from MSNBC; and here and here at articles from CNBC.  And here’s another late article from MSNBC which suggests the current downturn is at least likely to be the longest recession of the post-WWII period.

In this Wall Street Journal article, Harvard economist Robert Barro examines historical data in order to evaluate the odds of a depression and concludes there is at least a one-in-five chance of a 10% decline in GDP (a day later he upped this to a 30% chance!) and thus of what he calls a “minor depression” (a major depression would be a 25%+ fall in GDP).  We’re certainly not there yet, but nonetheless the revised GDP did fall a stunning 6.2% in the fourth quarter of last year, and the first quarter of 2009 likely shapes up to be just as bad, if not worse. 

Princeton economist Paul Krugman points to something else:  the “zero lower bound,” i.e., that the Federal Funds Rate has dropped to more or less zero.  Though I’m certainly no economist, I take Krugman’s point to be the fact that we’ve run out of monetary options with which to stimulate the economy, and this is the same thing that happened in the 1930s.  Take a look at this graph from Krugman’s blog.  (By the way, I’m just now reading Krugman’s Return of Depression Economics and the Crisis of 2008, and it’s quite good.)    

In addition to Krugman’s book (which is now “on order” by the library), we’re beginning to build up quite a few titles relating to the current economic crisis.  These include:  The Great Depression Ahead:   How to Prosper in the Crash Following the Greatest Boom in History by Harry S. Dent; The New Paradigm for Financial Markets:  The Credit Crisis of 2008 and What it Means by George Soros; Panic:  The Story of Modern Financial Insanity, edited by Michael Lewis; Contagion:  The Financial Epidemic That is Sweeping the Global Economy–and How to Protect Yourself from It by John R. Talbott; The Wall Street Journal Guide to the End of Wall Street as We Know It:  What You Need to Know About the Greatest Financial Crisis of Our Time– and How to Survive It by Dave Kansas; Crash Proof:  How to Profit from the Coming Economic Collapse by Peter D. Schiff with John Downes; Chain of Blame:  How Wall Street Caused the Mortgage and Credit Crisis by Paul Muolo and Mathew Padilla; Obama’s Challenge:  America’s Economic Crisis and the Power of a Transformative Presidency by Robert Kuttner; Mr. Market Miscalculates:  The Bubble Years and Beyond by James Grant; Dangerous Business:  The Risks of Globalization for America by Pat Choate; and Bad Money:  Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips.

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6 Responses

  1. […] The library doesn’t own anything by Simon Johnson, but we do have plenty of books on the financial crisis by other authors.  For a recent list, please link to this previous post. […]

  2. […] And this previous post includes a list of our recent titles pertinent to the financial crisis. […]

  3. […] again, this previous post includes links to some recent works on the financial crisis owned by Greensboro Public […]

  4. […] works on this topic can be found at this previous post. Possibly related posts: (automatically generated)Guilford County Unemployment Rate Drops to […]

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  5. […] what must have been the darkest days of the financial crisis, we wondered in this blog if we were on the verge of a depression.  I’ve since gotten used to calling this period of economic woe the Great Recession, but […]

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