Is this a recession or a depression?

Most people think that a depression is simply a very, very bad recession. In fact, the two are totally different and unrelated events.

A recession results from central bank tightening lending (through higher rates) to slow the economy and lower inflation.

A depression results from unsustainably high levels of debt. In the early 1930s debt in the US reached 300% of GNP. In late 2007 through present, debt has reached 360% of GNP. We have never been here before - EVER!

In a depression - assets and debt both have to drop. Debt is written off as uncollectible (unless you are a hedge fund representing the privileged class in which case the US Taxpayer keeps you whole) and assets are marked down.

This is not a recession. The central bank did not raise interest rates to cause this. In fact before this even began long term rates dropped below short term rates. Asset prices are dropping fast. Indicators like the double 9:1 up days have no validity in periods like this. If that is how you want to make money - buy a lottery ticket. There are more fundamentals behind it.

Related Posts:

• 1929 and 2008 Credit Crisis - The Great Depression I and II.
• Bernacke has two choices, neither of which are good.
• Here’s a promising article: “Fed moves to drain some money out of economy” (posted on yahoo at 4:01 pm today)
• A Depression Never Ends (1929-2009)
• We will remain in the bottom of the V or U or even W.

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