Are We In a Recession or a Depression?

Are We In a Recession or a Depression?

Look like we are more in Depression than Recession with following key points :

• A recession is the part of the business cycle that cleans the system from the excesses of the previous expansion. And a recession usually last only less than one year, and it does not really change the thinking and behavior of the economic subjects.

• A depression is different . A depression lasts longer than one year and it goes deeper. In depression there is a secular changes in consumer spending and saving, and deflation usually follow by stagflation

Example :US personal saving rate jumped from 12.7% to 33%. This is a Depression signal.....

 New Sustain behavior ? I think is likely, not only in US also for many other countries..

Another Example, China factory deflation deepens in May...the recovery is slow, most likely need more than a year.

• From the early 50s to the early 90s, the world population between zero and 65 years old grew by about 25 million per year. We declined to zero in 2018. Now we are negative and it will be shrinking down to 12 million negative growth into the early 2030’s.This creates a much different background for economic growth than what we had previously.

• The corporate sector that has more debt than ever around the world, they had to borrow to pay all the expenditures. The deficit is the US was about $500 billion last year. Corporations now  they have to repair the balance sheet. Richard Koo called it the Balance Sheet recession when Japan entered the Big Depression in 1990
  

My Conclusion,  it all depends on how respective countries governments react going forward..... As an investor, we should assume we are in the Depression for any investment decision...

During the1930 Great Depression the savings rate rose from a de facto 0% to 28%, even long after GDP had bottomed out. It is often forgotten that the Depression did not end until 8 years after GDP had reached its lowest point (1933). The stock market did not exceed the highs of 1929 until 1958.

I Think this time we are in better position than 1930, but likely it still take more than 2 years to recover.....

What makes a depression different than a recession is that a depression ushers in many years of secular change in behavior. Recessions do not.---Dave Rosenberg