Once most Americans believed the national economy was depressed, it became extremely difficult for government to overcome that belief and cause an economic recovery. Some people think the Great Depression would’ve lasted 5 to 10 years longer if WWII hadn’t begun and forced a dramatic change in public sentiment.
In order to understand whether we are or aren’t in an economic depression, we need a definition of the phenomenon that we can compare to our current conditions. Wikipedia defines “depression” as follows:
"In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as inevitable part of capitalist economy.
"Considered by some economists to be a rare and extreme form of recession, a depression is characterized by its length; by abnormally large increases in unemployment; falls in the availability of credit, often due to some kind of banking or financial crisis; shrinking output as buyers dry up and suppliers cut back on production and investment; large number of bankruptcies including sovereign debt defaults; significantly reduced amounts of trade and commerce, especially international; as well as highly volatile relative currency value fluctuations, most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession."
That’s a decent definition of “depression”. It lists objective phenomena that, in sum, can tell us if we are or aren’t in a depressed economy.
That definition is incomplete because it doesn’t mention the psychological forces that are intrinsic to a true economic depression. The truth is that we’re not really in a depression until the public generally believes we’re in a depression.
For example, we’re told that the Great Depression began with the stock market collapse of A.D. 1929. We vaguely presume that one day the economy was strong, and then, following the stock market collapse, the national economy slipped instantly into a full-blown depression. We tend to believe that the economy went suddenly from prosperous to depressed, much like a room goes from light to dark by flipping a light switch.
That’s not so. The Great Depression wasn’t a sudden vertical fall from an economic top to an economic bottom. Instead, it was a slide at, say, a 45-degree angle, that included some significant ups before reaching the final “down”
Because the Great Depression was an up-and-down slide that took several years to reach “bottom,” it wasn’t clear to most Americans that they were in a depression until A.D. 1933.
In retrospect, we agree that the Great Depression started in A.D. 1929. But, at the time, it took most Americans four more years to agree that there even was a “depression”. Thus, for the first four years of the “Great Depression,” most Americans weren’t fully aware that they might even be in a depression.
Once most Americans believed the national economy was depressed, it became extremely difficult for government to overcome that belief and cause an economic recovery. Some people think the Great Depression would’ve lasted 5 to 10 years longer if WWII hadn’t begun and forced a dramatic change in public sentiment.
My point is that, just as many Americans of A.D. 1929 didn’t recognize they were in a depression for up to four years, it’s entirely possible that today’s Americans could also be an economic depression for several years without knowing it.
Therefore, I’m fascinated by Richard Russell (Dow Theory Letters) who recently wrote,
“I hesitate to say this because it's so extreme, but I believe the world is in a depression. We're being lied to by a frightened and desperate government and Federal Reserve. Sooner or later the US public is going to realize that we're in a depression. The government and the Fed will fight the gathering depression with lies and propaganda. To fight the depression, the Fed will open the money spigots wide, creating new trillions of ‘dollars.’ Some wise investors are aware of all this, which is why gold continues to push higher . . . .”
Richard said the “D-word” four times in five sentences. That’s very politically incorrect.
He’s not alone. There are a few other gurus who’ve also dared to say the “D-word”. While the number of Americans who currently believe we’re in an economic depression are a small minority, their numbers are growing.
Are they right?
Is it possible that ten or twenty years from now, historians will look back and declare that the “Greater Depression” actually began with stock market “crash” of 2008? If so, you and I aren’t living in a “pre-recovery” economy. Instead, we may already be several years into the “Greater Depression”—and not yet even know it.