Is it finally time to use the dreaded D-word?

[Tyr]

A Depression doesn't have to be Great — bread lines, rampant unemployment, a wipeout in the stock market. The economy can sink into a milder depression, the kind spelled with a lowercase "d."

And it may be happening now.

The trouble is, unlike recessions, which are easy to define, there are no firm rules for what makes a depression. Everyone at least seems to agree there hasn't been one since the epic hardship of the 1930s.


But with each new hard-times headline, most recently an alarming economic contraction of 6.2 percent in the fourth quarter, it seems more likely that the next depression is on its way.

"We're probably in a depression now. But it's not going to be acknowledged until years go by. Because you have to see it behind you," said Peter Morici, a business professor at the University of Maryland.

No one disputes that the current economic downturn qualifies as a recession. Recessions have two handy definitions, both in effect now — two straight quarters of economic contraction, or when the National Bureau of Economic Research makes the call.

Declaring a depression is much trickier.

Some views from Washington over the years on the difference between a recession and a depression:

The Great Depression retains the heavyweight crown. Unemployment peaked at more than 25 percent. From 1929 to 1933, the economy shrank 27 percent. The stock market lost 90 percent of its value from boom to bust.

And while last year in the stock market was the worst since 1931, the Dow Jones industrials would have to fall about 5,000 more points to approach what happened in the Depression.Few economists expect this downturn will be the sequel. But nobody knows for sure, and nobody can say when or whether the downturn may deepen from a recession to a depression.

In his prime-time address to Congress last week, President Barack Obama acknowledged "difficult and trying times" but sought to rally the nation with an upbeat vow that "we will rebuild, we will recover."

The next day, Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee that the "recession is serious, financial conditions remain difficult." He held out a best-case hope that it might end later this year, with "full recovery" in two to three years.

Despite the tempered optimism, the economic outlook remains grim. Consumer confidence has fallen off the table, stocks are at 12-year lows, layoffs come by the tens of thousands, and credit remains tight.

 

[Kreskin]

They have to resolve the credit situation in a hurry. Good profitable companies are going out of business because the US banks are calling loans. Easier for the banks to get money from profitable companies than broke ones.

 

[petros]

There are some incredible stock bargains to be had. The profits from a bake sale could net you an easy 250 shares in GM. Dumping a used iPod will get you 10 shares in GE. This is the time when those who ahave patience go WOOHOO and clean up shop to make room for the short and long term bargains.

Both GM and GE will get military contracts to replace vehicles that will remain in Iraq, Afghanistan and other deployments. It's not worth bringing most them home. GM was $25.00 this time last year and 2.01 today. Do you really think a giant like GM that is a military supplier will ever go down?

It's a bargain!!!

 

[JLM]

I guess it all depends on who you are and how you take it. I would imagine people like most seniors would think this is nothing new and we are still a lot better off than what we were growing up. For the young people, who are trying to get established and get some equity in a house and hope for job security, it's a real worry to say the least. A lot of older folks can be content with a comfortable shelter, three squares a day, a radio to listen to and a book to read.

 

[Kreskin]

My mom was born in 1919 and was a teenager during the great depression. The era influenced her to be ultra conservative with financial risk for the rest of her life. I wonder if this experience will cause the younger generation of this era to be for the most part be ultra conservative for the rest of their lives.

 

[SirJosephPorter]

This cannot be called a depression, not yet anyway. While conditions are grim, the statistics are not even comparable to the recession of the 80s.

In the 80s, we had high inflation, high unemployment, high interest rates etc. Stock market tanked big time in the 80s, it took ten years to recover it. I think there was a ten year period in 70s and 80s, where the stock market barely moved. After that it took off, with increases of 13 to 15% annually.

So we have not even approached the dire economic conditions of the 80s. If we didn’t call it depression at that time, why call it a depression now?

I think we have been spoiled by the prosperity of the recent years, we have forgotten (or in the case of youngsters, they haven’t seen first hand) what real hardship is like.

So no, it is definitely not a depression yet. The conditions will have to get much worse before it can be called a depression.

 

[SirJosephPorter]

There are some incredible stock bargains to be had. The profits from a bake sale could net you an easy 250 shares in GM.

Petros, I am seriously considering putting more money in the Canadian banks (I am already heavily invested in the banks). Banks are giving incredible amount of dividends, ranging from 6.5% to 10% (I think BMO pays the most). In terms of interest earned that translates into a return of (roughly) 8.5 to 13% annually.

The banks reported this quarter, and they all had a good quarter (relatively speaking; the profits were down of course, but they all made substantial profits). So there is no talk of banks cutting the dividends. However, even if they cut the dividend by as much as half next year (a near impossibility in my opinion), the annual return will still be a very attractive 4.5% to 6.5%.

I don’t know know much money market funds or GICs pay these days, probably less than 2%. So I am definitely looking at financials for more investment.

 

[s_lone]

My mom was born in 1919 and was a teenager during the great depression. The era influenced her to be ultra conservative with financial risk for the rest of her life. I wonder if this experience will cause the younger generation of this era to be for the most part be ultra conservative for the rest of their lives.

My grandmother was born in 1918 and she's exactly like your mother... I think you're on to something.

 

[JLM]

This cannot be called a depression, not yet anyway. While conditions are grim, the statistics are not even comparable to the recession of the 80s.

In the 80s, we had high inflation, high unemployment, high interest rates etc. Stock market tanked big time in the 80s, it took ten years to recover it. I think there was a ten year period in 70s and 80s, where the stock market barely moved. After that it took off, with increases of 13 to 15% annually.

So we have not even approached the dire economic conditions of the 80s. If we didn’t call it depression at that time, why call it a depression now?

I think we have been spoiled by the prosperity of the recent years, we have forgotten (or in the case of youngsters, they haven’t seen first hand) what real hardship is like.

So no, it is definitely not a depression yet. The conditions will have to get much worse before it can be called a depression.

Actually, Sir Rupe, the 80s weren't all that bad, more people are losing jobs and houses today than ever happened in the 80s. I don't recall any of the big corporations and banks calling for bailouts in the 80s. I don't recall the 80s as being such a world wide problem. The 80s was more of a "correction" as everything was getting overvalued, especially real estate.

 

[Cannuck]

If it wasn't for the TV and radio, the only way I would know there was a problem is by my under performing stocks. I personally don't know anybody that has lost their job nor do I know anybody that is worried over that prospect. There are areas that are relatively unaffected. Alberta gained over 3000 jobs in January, Saskatistan's unemployment rate dropped and Manitoba's has only increased slightly and that is due to more people moving to the province.

Here, the slow down is actually a good thing because we can now find a plumber or an electrician if and when we need one.

 

[SirJosephPorter]

Actually, Sir Rupe, the 80s weren't all that bad, more people are losing jobs and houses today than ever happened in the 80s. I don't recall any of the big corporations and banks calling for bailouts in the 80s. I don't recall the 80s as being such a world wide problem. The 80s was more of a "correction" as everything was getting overvalued, especially real estate.

The big banks and corporations may be in trouble, JLM, but statistics don’t look anywhere near as bad as they did in the 80s. Unemployment is still lower than the worst in the 80s (as yet, it may change), inflation is a lot lower, interest rates are a lot lower compared to 80s.

So if we didn’t call 80s a depression, there is certainly no reason to call this one a depression. As I said, I think we have been spoiled by the good times we have had for the past 20 – 25 years.

 

[petros]

There are some incredible stock bargains to be had. The profits from a bake sale could net you an easy 250 shares in GM.

Petros, I am seriously considering putting more money in the Canadian banks (I am already heavily invested in the banks). Banks are giving incredible amount of dividends, ranging from 6.5% to 10% (I think BMO pays the most). In terms of interest earned that translates into a return of (roughly) 8.5 to 13% annually.

The banks reported this quarter, and they all had a good quarter (relatively speaking; the profits were down of course, but they all made substantial profits). So there is no talk of banks cutting the dividends. However, even if they cut the dividend by as much as half next year (a near impossibility in my opinion), the annual return will still be a very attractive 4.5% to 6.5%.

I don’t know know much money market funds or GICs pay these days, probably less than 2%. So I am definitely looking at financials for more investment.

I've been piling up gold since I was a kid and got my first wash pan and found colour.

I hate to say it but for me 9-11 was a financial blessing of immense magnitude. Au baby! We made seven fold over as many years and now it's time to scoop up some of the market in other ways.

Canadian banks are indeed a safe bet, especially the Royal. The Saxe-Coburg-Gotha family is who the US went to for bail out money which means RBC is a powerful entity holding a big chunk of the US's second mortgage on the Whitehouse.

I don't think we've seen the bottom yet. The food commodities will be the next to take big hits and the new mega farms will go down.

That is something I'm not looking forward to seeing but it will happen and soon.

 

[Nuggler]

Give it a year or so, when all the EI is exhausted, the severances all spent, and the foreclosures start in Canada.

 

[SirJosephPorter]

I

Canadian banks are indeed a safe bet, especially the Royal. The Saxe-Coburg-Gotha family is who the US went to for bail out money which means RBC is a powerful entity holding a big chunk of the US's second mortgage on the Whitehouse.

Petros, Royal Bank reported 1 billion $ in profit (this when AIG reported 68 billion $ loss and Royal Bank of Scotland posted 34.4 billion $ loss, the biggest loss in British corporate history).

With one billion $ in profit, things could get worse and Royal Bank may still make profit. Things probably have to get as bad as during the great depression for Canadian banks to start making a loss.

 

[SirJosephPorter]

I was particularly surprised at CIBC. I don’t know if it was just an accounting quirk, but CIBC reported a loss last year at this time. They turned it around this year, and reported a profit in excess of 300 million $ (not counting the 400 million they have salted away for any future credit losses). It is the smallest of the big banks, so profit in excess of 300 million $ isn't at all shabby.

Clearly Canadian banks are doing something right. What is more, they are willing to share the bounty with the investors (by giving generous dividends).

 

[VanIsle]

Actually, Sir Rupe, the 80s weren't all that bad, more people are losing jobs and houses today than ever happened in the 80s. I don't recall any of the big corporations and banks calling for bailouts in the 80s. I don't recall the 80s as being such a world wide problem. The 80s was more of a "correction" as everything was getting overvalued, especially real estate.

No JLM, I agree with Sirrup here. In the early 80's interest rates were as high as 22% on a mtg. In the late 80's we built a lovely home here on the island where house and land together cost us $125,000. Interest rates were still so high that we sold that house in 15 months as we transferred to another town on the Island and we lived in Quarters. We were happy to go because the 12.5% interest rate made our payment so high it was really hard to keep up. The Bank of Canada announced today that it has lowered it's rate to .05%. We'll see now how low the other banks go. That's if they decide to follow suit.

 

[SirJosephPorter]

This just in. Scotiabank reported earnings today, and they actually report an increase in profits for the quarter of 1%. Incredible.


Overall the six biggest banks - Royal, CIBC, Bank of Montreal, Scotiabank, TD Bank and National Bank - earned profits of nearly $3.1 billion for the quarter, up from $2.1 billion for the same quarter a year earlier.

 

[VanIsle]

Give it a year or so, when all the EI is exhausted, the severances all spent, and the foreclosures start in Canada.

Life is still good here where I live and building continues. House sales are still moving along at a good pace for now. That said - you speak of foreclosures starting. Well, even here there are job loses and there will be more. Never before in my lifetime have I seen Real Estate Reviews advertize foreclosures but they are now. Some of the houses that are for sale are on for cheap cheap. I feel so sad when I see that because I understand that a person has lost their job, they cannot pay for their mtg. anymore, and they are about to lose all that is dear to them in the way of security and God knows where they will go or how they will ever pull themselves up from it. Years ago we opened a business. When we were near to opening our doors, our lawyer said to us "You'll knock the business up the road right out of business". I had never given that any thought. It was never the plan. He was right. Within a couple of months of our opening they closed their doors. To this day, I feel bad about that. I know there are people who would ask me why and there are people who would have rejoiced but it bothers me. We sold that business 2 yrs. later as we were not doing all that well. To this day and it's going on 17 years ago now, someone keeps buying and trying to run that business. It sells over and over.

 

[SirJosephPorter]

That's if they decide to follow suit.

That is the important thing, Islandpacific, if they decide to follow suit. They may decide to keep part of the rate decrease to themselves in these hard economic times, and perhaps pass on only .25% to the consumer.

The rate decrease doesn’t seem to have any effect on economy or consume confidence anyway, so I will understand if banks don’t transmit all of it to the consumers.

 

[VanIsle]

I was particularly surprised at CIBC. I don’t know if it was just an accounting quirk, but CIBC reported a loss last year at this time. They turned it around this year, and reported a profit in excess of 300 million $ (not counting the 400 million they have salted away for any future credit losses). It is the smallest of the big banks, so profit in excess of 300 million $ isn't at all shabby.

Clearly Canadian banks are doing something right. What is more, they are willing to share the bounty with the investors (by giving generous dividends).

CIBC did report a loss because they loaned too much money to US companies. They have recovered nicely.