Wednesday, March 4, 2009

Depression warning - from the WSJ???

Wow, the WSJ??  I have become convinenced that a full depression is the only way to save our kids.  Congress is obviously unwilling to absorb any pain to put our economy right.  Their path to a slow destruction will only prolong it until the boomers are too old to work and help dig us out.  Sooner rather than later is better.  The WSJ is issued it's warning.

What Are the Odds of a Depression?
International evidence suggests there is a 20% chance our stock-market crash will lead to much worse.

Central questions these days are how severe will the U.S. economic downturn be and how long will it last?

The most serious concern is that the downturn will become something worse than the largest recession of the post-World War II period -- 1982, when real per capita GDP fell by 3% and the unemployment rate peaked at nearly 11%. Could we even experience a depression (defined as a decline in per-person GDP or consumption by 10% or more)?

The U.S. macroeconomy has been so tame for so long that it's impossible to get an accurate reading about depression odds just from the U.S. data. My approach uses long-term data for many countries and takes into account the historical linkages between depressions and stock-market crashes. (The research is described in "Stock-Market Crashes and Depressions," a working paper Jose Ursua and I wrote for the National Bureau of Economic Research last month.)

The bottom line is that there is ample reason to worry about slipping into a depression. There is a roughly one-in-five chance that U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s.

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