1981 recession stock market crash
And what are the chances of the economy falling into another depression? The answer to the first question is fairly clear. In most ways that matter to economists and average Americans, this is the worst economic crisis since the Depression. The answer to the second question is not as clear. While the National Bureau of Economic Research officially declares the beginning and end of recessions, nobody does that for depressions.
Still, the general consensus of economists is that another depression is not likely. But the risks are greater than they were only a few months ago.
Even though it may seem obvious to most that this is the worst downturn since the Great Depression, the economy has experienced other serious recessions in the past, particularly in the mids and early s. In terms of length, the longest post-Depression economic decline was 16 months, which occurred in both the and recessions. This recession began in December , which means that it will enter its 17th month next Wednesday. The current recession is also more widespread than any other since the Depression.
Recession - Wikipedia
What's more, every state reported an increase in unemployment this past December, the first time that has happened in the 32 years that records for unemployment in each state have been kept.
Finally, during the past nine months, the drop in household wealth has been larger since anything on record in the post-World War II period.
So far during this recession, the nation's gross domestic product, the broadest measure of economic activity, has dropped about 1. Forecasts of experts surveyed by the National Association for Business Economics work out to about a 3.
To be sure, there already have been some quarters where the drop was much more severe. The government will report its final revision of GDP for the fourth quarter of and economists are expecting that report to show an annual rate of decline of 6. And some economists think the drop in the first quarter could be even greater.
But measuring the drop in economic activity from top to bottom is how economists judge a recession's depth. One of the main reasons why economists think another depression could be avoided is that it will take more than just a sharp decline in consumer spending and household wealth to spark a depression.
Historically, stock market crashes and bursting housing bubbles haven't necessarily led to depressions. It takes a variety of economic factors and policy decisions to turn a recession into something even more serious. Unemployment insurance, Social Security payments and larger government at the federal, state and local levels keep money flowing into the economy even as consumers and businesses pull back on their own spending. In addition, the Federal Reserve, led by Great Depression expert Ben Bernanke, has pumped trillions of dollars into the economy with new lending programs the central bank has never tried before.
That has swelled the supply of money. By way of contrast, the money supply tightened during the Great Depression. There were many other policy mistakes made in the s that economists say are not being repeated today, including stiff tariffs that killed international trade and government imposed limits on prices and production levels.
Even if Congress imposed "Buy American" provisions in the public works paid for by the stimulus bill, there is no call to move back to the strict protectionism of the s or production and price controls.
Still, even if the United States does not enter another depression, that doesn't make the current economic crisis any less painful for many Americans. Also, few economists are predicting an end to the recession anytime soon. Hembre said he is worried that the country could be in a period of prolonged economic stagnation similar so the so-called lost-decade that Japan suffered starting in the s. He said continued weakness in housing and high debt levels by households and governments could hold the economy back for some time.
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