These days, we hear the words "Great Depression" thrown around a lot whenever the talking heads on TV are talking about the state of today's economy. As Savvy Frugality has stated before, the U.S. is NOT anywhere near Great Depression territory. During the Great Depression, one out of every four Americans was out of work, thousands of banks failed and the stock market plummeted some 90 percent. Things are bad...but they aren't that bad.

As Savvy Frugality has stated since September 2007, the U.S. is indeed in a recession, and a deep one, at that. Now, economists are agreeing. According to the National Bureau of Economic Research, the U.S. has been in a recession since December of 2007.

First, the bad news:

At one year, this ranks as one of the worst recessions since World War II. Only two recessions since then have lasted longer.

Unemployment is probably going to get worse before it gets better.

If the U.S. doesn't recover during the next year, we are likely headed for a depression.

Now, the good news:

Recessions last an average of ten months. The worst recessions lasted 16-24 months (1973-1975, 1981-1982). Chances are we could already be on the road to recovery.

The stock market may have already hit bottom. If the U.S. economy recovers in 2009, that means stocks will be headed back up. Good news for those who took advantage of the fire sale and snatched up quality stocks while they were cheap.

The U.S. government, or at least the people who manage the U.S. economy, KNOW things stink right now, and they have plans to do something about it. The U.S. slides into depression when the policymakers literally do nothing (like during the Great Depression). Regardless of your politics, it is unlikely President-Elect Obama will do nothing. He won the election based upon his plans to fix the economy. He'll have to do SOMETHING, or risk becoming a one-term president.

So, how does the government try to fix the economy and end a recession? In the past, government spending and tax cuts have been used to shock the economy back to life. Obama has proposed doing both. Will it work? We may have our answer within the next six months. It all depends on how quickly the U.S. government acts to employ one or both of these policies.

Savvy Frugality Recommended Reading:
The Worst is Yet to Come?

2 comments

  1. ryan // December 1, 2008 at 8:52 PM  

    Ya think? Citibank the biggest bank in the world cannot operate with our money. Fannie and Freddie the largest mortgage lender in the world are penny stocks and controlled by the US governemnt, the largest commercial insurer AIG is owned by the government, the 5 largest investment banks are no longer. I won't waste my time and say anything else except either you are uneducated or your lying.

  2. SavvyFrugality // December 2, 2008 at 8:23 AM  

    Well, an economic think tank and the U.S. fed chairman are in agreement with the premise of my post. I have studied the history of the Great Depression and economics (although I would not call myself an economist or economic expert). I have no reason to lie about the economy, so I'm not sure what you're basing that premise upon. So, I am neither uneducated nor am I lying.

    The problems with Fannie and Freddie were created by deregulation which allowed them to give mortgages to people who could not afford to repay them. The problems at AIG and Citibank were created by, well...AIG and Citibank and the people who run them. While bailing them out is distasteful, doing nothing at all would be even worse.

    I guess history will be the judge of whether I am right.

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