Tuesday, 18 November 2008

We are not in a depression

Response to This post by Jimmy Cotton, who should add a comments feature to his blog.

Note to Jimmy:
Donny Deutsch and Wikipedia are not the most reliable sources on economic issues. Or anything really.

We are not in a depression. The definition of a recession is two consecutive quarters of declining output. A slump doesn't sound as bad, but it's actually worse: it's a period where output falls by at least 10%. A depression is worse than both: it's longer than a recession and deeper than a slump. Until somebody produces numbers that show that GDP has dropped for at least 3 quarters and by 15% or thereabouts, you cannot say that we are in a depression. That's not to say we aren't on our way, but panicking prematurely is not going to help.

Source: the economist

18 comments:

J.Cotton said...

The meaning of a "depression" has been debated over and over , and it means different things to different people. When you see what is happening with the world's currencies and the massive credit problems, you might see it in another light.

cherenkov said...

I see it, but it doesn't look like depression to me. Inflation is relatively stable (your quote states that deflation or hyperinflation are common elements of depression) and large currency fluctuations were happening before the credit crisis really materialized.

Another thing that I don't like about that wiki definition is this: "highly volatile relative currency value fluctuations, mostly devaluations." How can it be mostly devaluations if it's relative?

Taking medicine for Tuberculosis because you have a bad cough isn't helpful if what you really have is a bad cold.

Anonymous said...

Taking medicine for tuberculosis isn't a bad idea if you have a bad cough and don't know what you have ( see House for treating unknown diseases ). I agree you'll look pretty silly if all it was was a bad cold, but what if it was Tuberculosis.

Its your health, its your money.

cherenkov said...

Perhaps a poor analogy on my part, but the point is: learn what you're dealing with first (by consulting somebody other than Donny Deutsche hopefully) and take appropriate action. Don't look at symptoms (currency fluctuations, etc) and make assumptions base on that. There are objective measures that need to be considered.

J.Cotton said...

Inflation IS NOT stable. Depending on which definition of inflation you use, we have deflation or High Inflation. The REAL definition of inflation is when the currency supply is increased, when they print more money . What they are doing right now is printing Trillions of dollars to try and fix the mess. Our own finance minister bought $75 Billion in mortgages off the banks in the last month , and where do you think that money came from ? They printed it. And then Flaherty has the nerve to say we may have to borrow from the banks and go into debt because times are tough. You can see who really prints the money. We are on the road to hyper-inflation for sure .

Using the definition of inflation most people think is true, you could say we have deflation right now. Our dollar has lost 20% in the last 2 months, oil has crashed, Gold and Silver have crashed ( except on ebay...Silver Maple leafs are still going for $20 or more an oz , so heads up if you want some quick $$$ ) . In the short term , things are going to get cheaper.

Everything happens in cycles.

cherenkov said...

This is like the discussion about the definition of a depression: there is a generally excepted definition, then these other definitions which rely on various observations. The standard definition relates to the change in the prices of goods and services (as measured by the CPI in Canada) which is stable.

Deflation is a possibility with oil going down and people spending less, but the BoC still has room to lower interest rates to hopefully ward that off (and lower my mortgage payments!).

Anonymous said...

learn what you're dealing with first (by consulting somebody other than Donny Deutsche hopefully) and take appropriate action. Don't look at symptoms (currency fluctuations, etc) and make assumptions



Well, Goldman Sachs is at 55....i assume they are in a tough bind...meaning more unemployment in the States and ouch, that will hurt us almost as bad as the 50 thousand Citigroup is going to layoff.

Oil is crawling towards sub 40, and yes , ouch, its going to hurt Canada. Calgary is an oil slick away from becoming Winnipeg.


Food prices are going up and so are other products. i assume they are trying to gouge whats left of buyers to compensate for those penny pinching.


These little symptoms mean there is a major problem and I don't have the ability to stop it. So I short and I go to Cash.

Definitions, who';s definitions, the ones who broke the system, for sure, thats what I will watch for. Nope, I will be proactive and be wrong. My gut tells me this isn't normal and there is more to come.

By the way, I am making an offer on a house in Florida, buy when there is blood in the streets, just don't buy stocks.

J.Cotton said...

cherenkov , the Bank of Canada lowering interest rates will only make the problem worse. If anything, interest rates need to go up to encourage people to save money. Interest rates are at a point that lowering them further will have zero effect.

J.Cotton said...

Oil is under $50 this morning and markets are tanking.

cherenkov said...

http://money.canoe.ca/News/Economy/2008/11/20/7476196-cp.html

"Taking the average of 11 private sector economic forecasts - Canada will skirt a recession with 0.5 per cent growth next year."

"Under the low scenario of a 0.3 per cent contraction next year and slower growth going forward, however, Ottawa would be plunged into a deep hole with four years of large deficits."

Don't get me wrong: I acknowledge that there are serious problems with the economy, but 0.3% contraction is not a depression.

Lower interest rates will help companies like CanWest stay solvent, it will allow some companies to invest more in their operations, and it will help people like our friend Anon there buy houses. It's not a magic cure, but it's a tool that can be used.

Anon: good luck with the house. Make sure you check it out first.

J.Cotton said...

So if we are going to skirt a recession , then why is our government going into deficit $3.9 Billion in 2009 ?

J.Cotton said...

http://jimmycotton.blogspot.com/2008/11/canada-facing-39-billion-deficit.html

Anonymous said...

What really bopthers me is why the Feds thought it would be nice to accelerate the banks recapture of mortgages.

This bothers me for a couple of reasons.

1) Who decided that the feds should own the mortgages and pay the banks off.

2) Since the feds won't be able to collect the monthly mortgages, will they pay a fee to the banks to , in essence , do what they were supposed to do and how much is it going to cost ?

3) Is this a hidden message we should be listening to rathyer then swallowing the idiotic premise that the mortgages were bought so the bank would be able to lend out , basically 70 Billion...WHO the hell is going to be borrowung, more people looking for mortgages ? HUH...I don't get it.

J.Cotton said...

Anon, that is what they are hoping for...more people getting deeper in debt. The reality is this country has to start producing and saving again. Funny how they will buy out mortgages ( and print the money to do it ) , yet with the upcoming federal deficit we will have to borrow $3.9 Billion from the banks. Maybe we should have just paid off more of our national debt to help out the banks, we are paying them $37 Billion in interest each year.

Anonymous said...

Yes JC, its a little abstract thinking on their part but no one has made a sound on the issue of the mortgage buyback.

Its ridiculous how sheepish we are. You know, when this mess started to unravel, they should have just shut the markets down till they had a handle on the size of the problem. In fact they should just do it now.

SO you have a figure as to how much the Feds are going to pay the banks for handling the mortgage payments we taxpayers just bought.

J.Cotton said...

I don't know about shutting down the market..I say just stop trying to bail everything out and let nature take its course. Selecting industries to bail out will prove to be a disaster.

Anonymous said...

You have to shut it down. It gives everyone time to breath.

Consider, the stock market really has nothing to do with how a business works from day to day. Well real businesses, those that make things.

The only downsides to closing the market is perceptions, ya , like the US is the free marketeer of the world means anything. Job losses in the financial sector, well, Citi is going to shed 50 thousand, so its going to happen anyways...new companys can't get money to grow, not like the IPO's are flooding wall street.

So, the market really means nothing, all it means is the casino closes for a few months to a year. Speculation stops, panic eases and everyone has time to breath.

Its either that , or , what we have now. yippppeeeeeee

Anonymous said...

On a positive note, I am happy to see the feds are buying more Force protection Cougars and Buff's for our troops.

I bought this company at 75 cents, I really like the product. had to sell it when the US didn't sole source it...but the product is great.

Could be the main reason Iraq has quieted down, less soldiers dying.

 
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