Understanding a depression

One of my favorite reads each day is Calculated Risk — if you aren’t reading, you should be. The blog’s host put up a tour de force yesterday that asked the question: are we really facing a depression here in the States? The bottom line of the well-reasoned analysis is worth paying attention to:

Even though the current recession is already one of the worst since 1947, it is only about 1/3 of the way to a depression (assuming a terrible Q1). To reach a depression, the economy would have to decline at about a 6.6% annual rate each quarter for the next year.

Which means simply: things are bad, yes, but they could get a whole lot worse. While CR remains confident a depression isn’t in the offing, and I agree we have a ways to fall before we could get there, I think I’m starting to side a bit more with Paul Krugman on this — things could get a whole lot worse. How much worse in anyone’s guess.

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