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What the !@$%…? When Does a Recession Become a Depression?

by Marquette Turner

in Features, Wise Guy

The word “Depression” instantly conjures up black and white images of people waiting in line for bread and soup in America from the Great Depression 1920’s and 1930’s, when the world economy plunged dramatically. The effects were felt in pretty much every country, rich or poor, and international trade decreased by approximately half to two-thirds, as did personal income, tax revenues, prices and profits.

It’s thus hard, and indeed petrifying for many to imagine that something similar could happen again today.

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Now, whilst there’s no exact science or rule to determine whether an economy has reached the stage of a depression, there are indeed some pointers that can be taken into account:

  • three consecutive years of negative GDP;
  • a 10 per cent drop in GDP;
  • unemployment has reached 19 per cent;
  • a recession that doesn’t correct itself;
  • economic condition that requires previously unaffected citizens to sell tangible assets to stay afloat.

Thus, there are general pervading factors that can be used in determining whether the gravity of the economic downturn has reached the stages of a depression: if the crisis seems dramatic enough and the response of the government is overwhelming, then we know we are in for the long haul.

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Simon Turner

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