Recession and depression
Depression was the term used for any downturn in economic activity before the Great Depression of the 1930s. The term recession was developed to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. Thereafter depression has been considered a recession that lasts longer and has a larger decline in business activity.
Why should I be aware of this?
Greening your Money The pros and cons of being good with money
In a recession, economic growth falls dramatically, the stock market declines, and usually enters a bear market. This usually causes a "flight to safety” which causes interest rates to fall. Employers reduce new hiring, and eventually start laying off workers. Governments usually start lowering interest rates to revive the economy by spurring business lending and investment. Tax breaks for a certain period of time are also common.
A depression affects children as well as adults. In a depression, many parents lose their jobs and the family has very little money, not enough food, clothing and good housing. Sometimes children leave school early to try and find work to help support the family and get deprived of good education. Some families need to rely on charity to survive. Recession and depression benefit those who still have a lot of money left as they can buy businesses, stocks, and property at a very low price. Then when the economy is better, they can sell it at a higher price and make profit.
How does this affect me?
As stock prices decline our home value, and therefore our home equity, declines. Our wealth gets reduced and we continue to feel the impact on our savings, further reducing our wealth. The greatest risk is if you are in an industry that forced to resort to layoffs. We lose our jobs. If we are not laid off, we may be asked to work longer hours to compensate for the new employees who aren't hired.
The current economic slowdown was started by a housing market decline which itself was initiated by the Subprime mortgage crisis. This decline also means that existing home values have fallen by 10%. In a recession, prices could fall another 5-10%.
All about recession and depression
A recession in the economy is far less severe than a depression. A recession is set to have set in when there is a decrease in a country’s Gross Domestic Product (GDP) over more than one quarter of a year. The GDP decrease is measured as less than a 10% decrease.
A depression, on the other hand, is measured as a decrease in the GDP of 10% or higher in a given year. Thus, one cannot accurately describe a quarter decrease of greater than 10% as a depression unless the same conditions exist for a year.
The economics of a country are relatively fragile, and slight changes, or shocks, like the dot.com burst, can result in decreased spending, thereby reducing the GDP by less than 10%. Recessions, therefore, happen more frequently than depression. If the economy is diversified it can recover rapidly from recession as there are other ways to spend money.
As the dot.com recession lasted for several years, it was often inaccurately termed as depression. But it did not reduce the GDP by more than 10%, thus the economy recessed, and was not depressed.
Depression and recession can be measured by fairly specific terms, and economists often quite visibly correct those who use the words incorrectly.
What can I do?
You probably started your business when the economy was strong and, therefore, didn't give much thought to what you would do in a slow economic period like an economic recession. It’s time to face the reality when there is a recession
- A recession, or when the economy is about to enter a phase of recession can be an excellent time to take stock of where your home business has been, where you want it to go and how you will achieve your goals.
- The first step is to identify the problems, or challenges and the opportunities facing your home business . The challenges and opportunities that face your home business (or your personal life) will likely contain a mix of issues: Those that apply specifically to your home business and those that apply to the economy as a whole.
- In order for your home business to survive and prosper, you must listen to what the customer is saying and observe how they are behaving.
- You can end up discovering untapped markets by going through the process of identifying your challenges and opportunities as well as those of your customers. If you can make certain alterations as the situations demand, you are likely to create a whole new market for yourself.
- From 1829 through the 1840's America suffered a depression when the cotton market crashed due to the ruination of the top soil and the remaining clay being severely damaged.
- In 1929 America went through a “Great Depression” when the stock markets crashed due to the Drought in the Great Planes creating what is called the “Dust Bowl.”
- These things happened almost one hundred years apart, and we go again just a little earlier this time around.
- Each time in between Americans have had good crops and abundance of necessity items.
- Recession? Depression? What's the difference?
- How Would a Recession Affect Me?
- Becoming a Recession Ninja
- Recession Depression for the Third Time