Depression vs Recession: Are you prepared? As we see the economy take a hit due to the COVID-19 Pandemic, many of us are wondering if there will be a recession or a depression. When it comes to being prepared, we not only need to prepare for the food and water we’d need to have stored, but we need to be able to see trends to know what is coming. Here’s what you need to know!
Depression vs Recession: What is a Recession?
The last recession we experienced in the United States was from December 2007 until June 2009.
A recession is a major decline in economic activity. It can last for months or even years as it did recently. Experts will declare a recession when our economy experiences negative gross domestic product, an increase in unemployment, failing retail sales, and contracting measures of income and manufacturing.
Recessions are considered unavoidable. Basically it happens from time to time. The National Bureau of Economic Research has authority in defining the starting and ending dates of a recession in the United States.
What Causes a Recession?
There are several things that can cause a recession. When we know what can trigger one, we can know to start preparing before anyone feels the ripple effects. Here are some things to watch out for when making your preparations:
- A sudden economic shock: This is a surprise problem, such as COVID-19 shutdowns that can create serious financial damage.
- Excessive debt: When individuals, businesses, or even the government takes on too much debt, it can cause a recession. The housing bubble back in 2007 that caused defaults and bankruptcies is a prime example of debt causing a recession. People were buying homes they couldn’t afford because the typical requirements weren’t being followed by the lenders.
- Asset bubbles: When people begin making investment decisions based on emotion, the happy bubble can pop. Panic selling can literally crash the market.
- A lot of inflation: Inflation isn’t always a bad thing when it is steady, but excessive inflation is dangerous. Rising interest rates are one of the signs inflation may be just around the corner.
- A lot of deflation: Just as too much inflation can cause a recession, too much deflation can as well. Deflation is when prices decline, but if they decline too much, people stop spending which hurts the economy more.
- Changes in technology: New technologies increase productivity in the economy over the long term, but in the short term, it can cause a recession. For example, the Industrial Revolution made entire professions obsolete which sparked recessions as people couldn’t find work.
Basically, if we don’t have most economic factors in balance and in moderation, a recession can and will happen. The reason recessions are typically unavoidable is because we always have ups and downs. Nothing in an economy stays balanced forever.
Since jobs can come and go, prices can go up and down, and life can change on a whim, it is always important to have enough food, water, and cash to get through a few months of a recession.
Depression vs Recession: What is a Depression?
The last time anyone experienced a depression in this Century was when we had the Great Depression.
A depression is a severe and prolonged downturn in the economy. It is typically defined as an extreme recession that lasts 3 or more years. A depression is less common than a recession. It tends to be accompanied by high unemployment and low inflation (low interest rates, are we seeing them?).
During a depression, you will see:
- Large increases in unemployment.
- The inability to get credit.
- A diminishing output in productivity.
- Negative GDP growth that is consistent.
- Bankruptcies galore.
- Possible government debt defaults.
- A decrease in trade and global commerce.
- Bear / downturn in the stock market.
- Falling currency values.
- No inflation or even deflation.
- An increase in savings rates.
What Causes a Depression?
We need to look out for trends that may cause a depression. Could we be slipping into one or are we just heading for a recession? The same things that cause a recession can also cause a depression. That is what makes it hard to know if current trends will cause the economy to drift into a recession or a depression.
What you need to look for when it comes to an economic depression it’s how severe things are drifting downward. How severe is the economic shock? How severe is the debt? If you are seeing a rapid decline in everything and it is more severe than in 2007, we may be heading for a depression and not a recession.
Depression Vs Recession: What’s the Difference?
Depressions and recessions are caused by similar situations. However, the overall impact of a depression is far greater than a recession. With a depression, you will have greater job losses, even higher unemployment, steeper declines in GDP. Additionally, a depression will last longer than a recession. This means the depression could be years not months!
The expert economists don’t really have a set definition or fixed measurement that shows the exact difference between the two. However, all the impacts of depression are thought to be deeper and last longer.
Are We Headed for a Depression or a Recession?
According to CNBC on June 9, 2020, we are officially in a recession. But, are we headed for depression? Unemployment levels are at unseen levels since the Great Depression, and many are wondering if we are going to dip right into a depression.
Even though this doesn’t look good, the economy could bounce back. This is because unemployment has been inflicted due to shutdowns from COVID. We are only looking at one factor which is unemployment. With the Great Depression, there were a number of factors including:
- The stock market crash.
- Use of the gold standard.
- Deflation and lack of any real fiscal or monetary policy.
Today, the government has a lot of policy tools at its disposal to keep the economy from reaching a full depression.
With that being said, keep an eye on the unemployment rates. If we see the number unemployed decreasing by December, we should be out of the woods, but if it increases, we may not.
How to Prepare for a Recession or Depression
Like I always say, it is better to prepare for the worst and hope for the best. In this case, I would suggest preparing for a depression and hoping for a recession. I have written a number of posts on depressions and how to prepare for them. To get a better idea of how to prepare, read some of my other posts, below:
- The Great Depression: What You May Not Know
- Build Your Own Great Depression Pantry
- Great Depression Meals-How to Eat for Less Money
- Shortages: Are they similar to the Great Depression
- 20 Tips from Grandma to Survive a Depression
An economic depression is much more severe than a recession. We have been through several recessions and survived just fine. Keep prepping! Stock up on food and water! I would suggest having at least a 6-month supply! If you can’t get that much right now, starting somewhere is better than nothing. Start with a can a week or each time you visit the store and work your way up. Work up to 2-weeks, then 3-weeks, a month, and just keep going. Remember, prepare for the worst and hope for the best! Please keep prepping, we must. May God bless this world, Linda
Copyright Images: Economic Collapse Deposit photos_2893414_s-2019