My top 10 reasons as to why a world depression will not occur

[MarkB]

Can you give examples of Capital money flowing?

Numerous central banks have put hundreds of billions of dollars into financial markets.

It's a capital tsunami.

And, in your definition, what is Depression?

What is Recession?

How can we tell a Recession from a Depression?

I'm glad you asked for my definition since, officially, I don't believe there is any official definition.

Imo a depression is a sustained period of significant economic contraction (sustained severe negative growth, if you can stomach an oxymoron).

A recession, otoh, is definined simply as two consecutive quarters of negative economic growth.

The difference?

1. Magnitude - a depression, for me, is a double digit negative event.
2. Length - a depression, again for me, last years.

Something to ponder (particularly in light of the many comparisons being made between now and the Great Depression):

"In the Great Depression, actual GDP dropped by 30 per cent. Ben Bernanke was correct in remarks he made last week that there is “an order of magnitude” (ten-fold) difference between the current downturn and the Great Depression. For the record, the worst overall drawdowns in GDP since the Depression – not just bad quarterly growth rates – were in 1954 (-2.65 per cent), 1958 (-3.75 per cent), 1975 (-3.10 per cent), and 1982 (-2.87 per cent)."

This is not to minimise the prospects for a further economic downturn, but to say that this is “the worst economy since the Great Depression” is like blowing up a crate of dynamite on the Nevada Proving Grounds and saying it is the worst explosion since the detonation of the atomic bomb there. Even if the statement is accurate, the comparison is absurd.

See: Mark Carnegie, "The Princess Di Effect", Business Spectator, 12 December 2008.

 

[Aaron Sice]

ooooh i like that quote.

 

[nonrecourse]

Here is another view on that D word;

http://www.contrahour.com/contrahour/2009/01/martin-armstrong-the-coming-great-depression.html

 

[Token Funder]

Equally, a global recession is no garden party. Have a quick search on the impact of, say, international tourism on Australian GDP and then consider the impact of something as seemingly mild as a big chunk of those foreigners staying at home to lick their wounds.....

 

[Kenster]

Thanks Mark & NR.

Mark's definition is in line with modern day definition that Recession is a contraction phase of normal business cycles and Depression is a severe form of Recession.

Martin Amstrong's explanation (in NR's article) on Recession is the same. Depression is different: It is a form of Recession coupled with the unwinding of excessive debts.

Based on Mark's definition, many world countries are in Recession (not Depression) since GDP growths, as reported, still hovered at around 0% mark.

However, it is more like the start of a Depression based on Martin Amstrong's definition, since there is a strong move to reduce debts around the world (central banks excluded).

Aha, all are right

PS. Based on the Austrian school of economic: Depression = Recession + Deleveraging. We are at the door steps of a Depression.

 

[boomtown]

Martin Amstrong's explanation (in NR's article) on Recession is the same. Depression is different: It is a form of Recession coupled with the unwinding of excessive debts.

PS. Based on the Austrian school of economic: Depression = Recession + Deleveraging. We are at the door steps of a Depression.

Lets not get overexcited here. A recession by definition (contraction of growth) almost certainly involves some deleveraging. Secondly, since when did Martin Armstrong start speaking for the Austrian School? (which in itself is a misnomer given that its professed adherents are more likely to agree on their preferred brand of icecream than the causes of the Great Depression...).

 

[MarkB]

However, it is more like the start of a Depression based on Martin Amstrong's definition, since there is a strong move to reduce debts around the world (central banks excluded).

PS. Based on the Austrian school of economic: Depression = Recession + Deleveraging. We are at the door steps of a Depression.

Well the Austrians and co. are entitled to their points of view.

By any chance, is anyone familiar with Francis Fulford - star, come host of, of "The ****ing Fulfords" and "Why England's ****ed"?

A quotation attributed to him is:

“Crisis point? I wouldn’t call this a crisis point. One of my ancestors was hung, drawn and quartered in 1463. That’s what I call a ****ing crisis point.”

Well, to paraphrase:

“Depression? I wouldn’t call this a depression. Last time we had a depression, GDP fell 10%, unemployment approached 30% and tens of thousands of people wandered the country looking for work. That’s what I call a ****ing depression.”

Those figures are as attributed to the Australian economy on Wikipedia. The US figures, fwiw, were a fall in GDP of around 25% and 20% unemployment. The Austrian's can point to all the deleveraging they want - imho it's when people start to really hurt through massive job losses arising from a huge fall in GDP that we enter a depression-like scenario. To date, based on what we know, we are not headed for that.

 

[Kenster]

... since when did Martin Armstrong start speaking for the Austrian School

He does not speak *for* the Austrian school.

His view, as displayed in that article, *conforms* with the Austrian school of thoughts.

 

[boomtown]

He does not speak *for* the Austrian school.

His view, as displayed in that article, *conforms* with the Austrian school of thoughts.

You make it sound like "conforming" to an economic school of thought means that an input of X will result in an output of Y. When in reality another practioner given the same set of facts and "conforming" to that school is just as likely to end up with an output of W.

 

[fald1]

keep this thread alive..

In USA circa 1930s, "The Great Depression" referred to the previous one (how ironic) whic was circa 1880.

So, here is the opening post list as it applied to someone back then, giving reasons (in italic) why they wouldn't see another great depression

1-2. The inevitable and unstoppable industrialisation of (insert country emerging in the 20s boom)

3. Perfect Capital Mobility
1920s bankers with superior telephoning and telegraphs etc would have probably felt the same.

4. International institutions (UN, IMF, World Bank)
There was gold. My opinion of these institutions remains for another thread.

5. International communications / travel
Greatly improved since the 1930s.. err.. i mean 1880s

6. Lessons learnt from the past
Ditto for circa 1930s economists

7. Lender of Last Resort.. To prevent a financial meltdown, the RBA, ECB, Bank of England, and US Fed (etc) could very well step in.
well picked.. let's hope it works!

8. The nature of western societies
Now, more than ever we are consumer driven.
The people of the roaring 20s would have felt 100% the same.
You know they even had porn movies back then (no sound) if it was allowed I'd post a link as proof

9. The public sector
Possible expansion of / or massive capital works (roads, hospitals, dams, etc) - which it could be argued are needed anyway.
no comment

10. The military Possible expansion / possible use of martial law
There was civil unrest and military tension around the globe circa 1930s.

I believe we won't have the D bomb but I'm an optimist.

I just think the reasons posted back in 06 would be typical of reasons given round 1929 depending on where you were.

A very interesting thread, would love to read it in a few years.. I'm hoping to have another 2 IPs by then, and a steady stable job

 

[Aaron Sice]

i hope i have no job and renting chumps are paying for my living expenses.

the more scaremongering going on re: owning at present, the better for many who are trying to accumulate more.

 

[MarkB]

Hi Fald

Nice contribution.

I just think the reasons posted back in 06 would be typical of reasons given round 1929 depending on where you were.

You see the similarities - I see major differences

Re: 1/2 - There was alot of growth post-WW1 in western nations - they were all trading with each other and were caught as much by contagion as anything else. Fast forward to the present day, yes contagion has been an issue, however, 2 billion plus people (India and China) have had a taste of the western way of life and knocking a few percentage points off world GDP growth won't do much to abate it.

Re: 3 - I'm not sure if capital was as mobile in 1930 as it was in 2008. Maybe for some of the large players it was, but for the tens of millions of mums and dads far less so. There was also a fractured international banking system (unlike today's multinational corporations).

Re: 4 - The point about international institutions is that, unlike in the 1930's, someone is looking at (or supposed to be looking at) the bigger picture. The UN, IMF and World Bank certainly make their fair share of balls-ups but I think, particularly at times like this, the world is better for their existance.

Re: 5 - Hundreds of millions of people are now reached via the update of websites. News travels far faster now than at any time in earth's history. This has allowed for a rapid and highly volatile adjustment process as markets price in news almost instantly.

Re: 6 - It's a common criticism, and often people refer to the military generals "fighting the last war". I'm sure there's a bit of that happening, but there's also a few new weapons being played in 2008.

Re: 7 - Significantly not only have the BoE, Fed, ECB, RBA, RBNZ, et al acted, whether by accident or design, they have all acted in a co-ordinated matter. It is without precedent.

Re: 8 - I realise it was a significant factor in getting us into this mess, but the credit that fuels western appetites for consumer goods will certainly play it's role in getting us out of this mess. Ask any old timer how hard it was to get credit when they were young and they'll say credit was tighter than a fish's backside. Things have changed - significantly.

Re: 9 - In regards to the public sector - of course I am referring to macroeconomic stimulus. Yes that sounds bleeding obvious in 2008, but in the 1930's it was cutting edge economics. Keynes' highly influential book The General Theory of Employment, Interest and Money wasn't published until 1936, some 7 years into the Depression.

 

[fald1]

Thanks Mark B for your reply.

I understand your position a bit better now.
I fully agree with most of what you replied (little things not worth mentioning in this thread)

Just hope it's not situational irony in the making, that a 1930s person would have felt highly superior, liquid, well equipped, technologically superior, with all the industrial/flight innovations since the previous depression.. that they could therefore sidestep another depression.. we, by feeling the same, may be walking down the same path.

That's not to say I think we are! I agree that since our last depression, the world has absolutely evolved into something a lot more connected, and the central banks are ready to act etc.

 

[fald1]

one reason why a world depression must occur?

I haven't thought deeply about this to believe it myself, but hopefully I can disbelieve it through rebuttal-

Despite all the advances of between each depression, we must suffer another at some stage because:

There must be enough gloom to push weaker ill governed investors and companies from the market, to clear it for the new technologies, the new way.

For there to be growth and boom, there must be doom and gloom.

I'm starting to sound like a guns n' roses song:
Every rose has its thorn
Just like every night has its dawn
Just like every cowboy sings his sad, sad song
Every rose has its thorn

What I'm hoping is that we've already had the right amount of medicinal gloom.

 

[MarkB]

There is probably some more doom to follow and, I expect, a major overview in banking and financial regulation to see if we can avoid this in the future.

In essence what you're saying is that:

"To every action there is an equal and opposite reaction."

(As you put it, For there to be growth and boom, there must be doom and gloom)

I think that is a fair point, but I'd have to ad caveats:

1. Growth and boom are different beasts (a boom is growth on steroids and more instable)

2. An an economy-wide level, growth can be managed sustainably if it is accompanied by (in particular in advanced economies) increases in productivity

3. At an economy-wide level, growth in less-advanced economies is both easier to achieve (just add more capital*, better skilled labour, etc) and more stable (industrialisation happens and keeps happening). LDCs can sustain higher growth rates for longer, but as they get more and more advanced they will increasingly face challenges of sustaintability.

*capital in the economic sense [productive capacity], eg. plant and equipment

I guess what I am saying is that if you experience a boom in something then it is fair to expect a bust (the equal and opposite reaction).

Believe it or not, Governments and central banks try to avoid booms (they know what is just around the corner) - they aim for more moderate growth. That isn't to say that even with moderate growth there won't be slowdowns or even recessions, that is the nature of the business cycle, but I don't think you need to have a recession to experience growth.