Friday, July 11, 2008

When Does A Recession Become A Depression?

This description of the difference between a recession and a depression was first offered on April 6th of 2008. Since few seem to be aware of what constitutes a recession and what constitutes a depression I consider my April 6th blog entry to have Fallen Through The Cracks.

Every day the news about the economy is shocking for one reason or another. It is enough to make one’s head spin.

The data reported by the empiricists are quoted as explanations by the spokespersons of economic statistics. Their interpretations are sterile yet bordering on the absurd. It is really just propaganda most of the time. Anyone who thinks that this information (or misinformation) will be useful in decision-making is either a fool or has a vested interest in the political scheme that is directed towards enriching the political class by various methods of thievery. In truth, the empirical data and the statistics and the analysis are all erroneous.

When does a recession become a depression?

At some point the practice of pumping money into the credit system and the banking system causes a fracturing of the capital structure. All the malinvestment caused by the distortion of the interest rate begins to become evident as the scrambling for resources exceeds what was thought to be available. This is a significant part of the beginning of the recession. We have long passed this condition, so yes we are in a recession!

Also the over-consumption stimulated by the artificially low interest rates hits consumers in the face as an overburdening debt. Restrained consumer spending and business streamlining causes the unemployment that is characteristic of a recession.
Meanwhile, the inflationary monetary policy imposed upon us by the central bank (and their political minions) leads to a flush of newly created money in an attempt to stimulate the economy, but what results is stagflation since the act of counterfeiting dollars cannot fix high unemployment and it just magnifies the high rates of inflation.

This is the worst case scenario for what can be described as a recession. But it is not the end of the line!

The ‘perfect storm’ scenario is called a depression. In short a depression is when there are all of these same extreme recession conditions combined with a deflationary spiral. Money, despite massive pumping into the system, disappears! These fears are about to come true since Fannie Mae and Freddie Mac are basically insolvent.

I describe the depression as a whirlpool where the currents created by the interventionists become so powerful and so misaligned that they generate a whirlpool where everything is sucked into the depression. Any actions taken by the interventionists simply add to the currents and intensify the whirlpool. The debasement of the currency manifests itself as hyperinflation and yet there is no credit available since there is no savings. Recovery is nil or strongly suppressed because alert entrepreneurship cannot decipher the mixed up signals. The depression will persist as long as the interventionists continue to feed the spiraling whirlpool with their fallacious economic policies.

Are we currently in a depression or are we about to enter a depression? The forces unleashed by the interventionists are very erratic. It could be that one of the next actions taken by the interventionists will trigger the depression whirlpool. Is the insolvency of Fannie Mae and Freddie Mac that lightning rod? Who knows?

What we do know is that a depression is an exponential recession that cannot be stopped if what causes the currents is continually fed by the interventionists. Imagine the unstoppable pull of a whirlpool. What we do know is that the cesspool of interventionists (the central bank, the politicians, and their bootlicking economic advisers) are responsible for all economic disruptions, whether the disruption is minor or whether it is a major catastrophe like a depression.

What is the solution? The correct policy is non-intervention, which is like getting oneself out of the water before the currents build so much momentum. Then the equilibrium forces that allow resources to become freed up will disrupt the whirlpool vortex throughout its structure, dissipating the energy, lessening the swirl velocity, causing it to break into smaller eddies, and making the economy safe for entrepreneurs to re-enter, to diagnose what goods and services people want, and to set their production sails and forge a new direction.

That new direction that is necessary for prosperity and liberty is unquestionably non-interventionism! In America a restored Constitutional Republic is what can prevent the economic destruction brought about by the ego-driven interventionists.

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