Pundits are now hogging the headlines, warning us of depression pegged at a 20 to 33% probability. Depression is indeed a dreaded word for those who can’t forget the harrowing images of people lining up for food during the Great Depression in 1929–1940 America.
The Great Depression was spurred by a decade of easy credit, culminating in a 25% unemployment rate as plants shut down operations as consumer demand plummeted. Sound familiar?
Depression has, so far, been defined six ways, depending on whom you ask.
1. Sustained, long, abnormal downturn in one or more economies; more severe than a recession, which is seen as a normal downturn in the business cycle
2. Sustained recessionary period in which the population is forced to dispose of tangible assets to fund everyday living
3. Decline in real GDP, exceeding 10% over three years
4. Two or more quarters of reduced GDP
5. A recession lasting three or more years
6. When the economy is characterized by declining business activities, real income, and prices, and there is rising unemployment, inventories, and public fear Pundits are now hogging the headlines, warning us of depression pegged at a 20 to 33% probability. Depression is indeed a dreaded word for those who can’t forget the harrowing images of people lining up for food during the Great Depression in 1929–1940 America. Adding fuel to the fire of uncertainty is the Op-Ed “Buy American. I Am.” of 17 October 2008, where Warren Buffett encouraged investors to buy. This was before the Dow plunged 26.8% from 8852 to 6478 on 6 March 2009.
It is understandable to be stricken by fear, especially after Warren Buffett, an icon among investors, admitted his mistake recently. Global economies now seem to be beyond the grasp of even the wisest investors.
From the sidelines, I searched and discovered disconcerting parallels between events circa 1970 and 2000. The difference is the current crisis seems far worse when one adds subprime and its derivatives, the credit crunch, and the global financial meltdown.
But cowering in fear and denial is not the answer. Accept that we’re in the middle of a crisis and come up with a survival strategy. Eerily applicable to the present time are the words of Franklin Delano Roosevelt, spoken during the 1930s: The only thing we have to fear is fear itself.
Print ed: 04/09