Comment E-mail Print

Historically, any recession that lasts longer than two quarters can, technically, qualify to be called a depression. Of course, the depth and breath of the downturn will affect the descriptor economists use to discuss it and historians assign in the history books.

In part one of this series, we discussed recessions, how quickly they can come upon us; and, how growing job losses impact the general economy. We noted that all recessions, "are actually contractions... in the natural dynamics of all things economic" and, as such, "reflect the net result of both increases and decreases in consumer spending and consumption, as well as the prices of goods, services, and labor".

Now, let's move forward to discuss where we may be heading next economically; and, what has been -- and can be - the effects of government interventions.

As downturns unfold, they usually are made worse by inappropriate government interventions undertaken by politicians, who - along with special-interests groups and the media - can, and do, spin the data; and, arbitrarily select 'political economists' that support their respective philosophical agendas. The objective, of course, is to politically influence the public with the skewed interpretations offered during the downturn.

Despite the political messaging and media spin, it doesn't take long for most individual citizens to figure out what's really happening, because many of them are experiencing the direct effect of whatever the economists ultimately call this contraction - recession or depression.

Ronald Reagan understood this.

And the people knew Reagan got it, back then, when he declared, "Recession is when your neighbor loses his job. Depression is when you lose yours".

During the current contraction, unemployment - already above 8% - will continue to increase. That means the number of individuals - including those in families - who will experience the depressing effects of recession will increase dramatically.

Thus, unemployment trends, along with the anemic financial system -- broken bank balance sheets, limited credit availability, soaring debt obligations -- bodes bad news for the rest of this year, at least; and, that bad news will likely continue into next year, despite political incumbents and the Fed forecasting that the economy could begin to recover later this year or early 2010.

Realists doubt the hype coming out of the Fed and from Washington officials, and that skepticism is wise.

After all, the value of all assets held by Americans has dropped an average of 18%. And, the housing market will continue to deteriorate as the number of foreclosures and bankruptcies increase. That means the largest investment during the lifetime of the typical American Citizen has already lost significant asset value; and, depending on when they purchased their home, may have a current market value peg that is "under water" versus the amount of their actual total mortgage debt.

The best generic measure for Americans to use as a gauge for knowing that a rebound has begun is tracking the national average sale price for residential homes -- adjusted for inflation. That same measure works for any region, local market, and in every individual situation, as each level of data absorbs factors that may be unique to your neighborhood or area. Again, be sure to adjust for inflation.

>> Continued -- Page 1 2