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We are more than one year into an official recession and even our casual readers are coming to realize that self-reinforcing feedback loops of falling demand and rising unemployment are only just beginning. I am often asked how much longer the recession has to go, and if it drags on for another year or more, at what point do we stop calling it a recession and start calling it a depression? A widespread misunderstanding about the two terms holds that recession and depression are the same phenomena differentiated by degree, that a recession that drags on long enough becomes a depression. But this ignores the history of the terms.
Both terms describe an economic contraction, a reversal of economic growth, specifically falling output. Before "recession" the term "depression" was used, and before that others, with use evolving over time. A severe contraction brands the current term in any era politically impallitable for future use by economists who hope to stay on the right side of the status quo. I find JK Galbraith's take on it illuminating.
"Chapter 9, The Price: Redefined definitions: panic, crisis, depression, recession, growth correction (Page 113):
Where economic misfortune is concerned, a word on nomenclature is necessary. In the course of his disastrous odyssey Pal Joey, the most inspired of John O'Hara's creations, finds himself singing in a Chicago crib strictly for cakes and coffee. He explains this misfortune by saying that the panic is still on. His term–archaic and thus slightly pretentious–reflects the unfailing O'Hara ear. During the last century and until 1907, the United States had panics. But, by 1907, the language was becoming, like so much else, the servant of economic interest. To minimize the shock to confidence, businessmen and bankers had started to explain that any current economic setback was not really a panic, only a crisis. They were undeterred by the use of this term in a much more ominous context–that of the ultimate capitalist crisis–by Marx. By the 1920's, however, the word crisis had also acquired the fearsome connotation of the event it described. Accordingly, men offered reassurance by explaining that it was not a crisis, only a depression. A very soft word. Then the Great Depression associated the most frightful of economic misfortunes with that term, and economic semanticists now explained that no depression was in prospect, at most only a recession. In the 1950s, when there was a modest setback, economists and public officials were united in denying that it was a recession–only a sidewise movement or a rolling readjustment. Mr Herbert Stein, the amiable man whose difficult honor it was to serve as the economic voice of Richard Nixon, would have referred to the panic of 1893 as a "growth correction.'" - Money: Whence It Came, Where It Went
Look for the term "recession" to fall into obscurity after this recession -- the association will be too dark. The next economic contraction will carry some other label. I propose the word "economic transformation" -- it sounds like it could be a good thing.Where economic misfortune is concerned, a word on nomenclature is necessary. In the course of his disastrous odyssey Pal Joey, the most inspired of John O'Hara's creations, finds himself singing in a Chicago crib strictly for cakes and coffee. He explains this misfortune by saying that the panic is still on. His term–archaic and thus slightly pretentious–reflects the unfailing O'Hara ear. During the last century and until 1907, the United States had panics. But, by 1907, the language was becoming, like so much else, the servant of economic interest. To minimize the shock to confidence, businessmen and bankers had started to explain that any current economic setback was not really a panic, only a crisis. They were undeterred by the use of this term in a much more ominous context–that of the ultimate capitalist crisis–by Marx. By the 1920's, however, the word crisis had also acquired the fearsome connotation of the event it described. Accordingly, men offered reassurance by explaining that it was not a crisis, only a depression. A very soft word. Then the Great Depression associated the most frightful of economic misfortunes with that term, and economic semanticists now explained that no depression was in prospect, at most only a recession. In the 1950s, when there was a modest setback, economists and public officials were united in denying that it was a recession–only a sidewise movement or a rolling readjustment. Mr Herbert Stein, the amiable man whose difficult honor it was to serve as the economic voice of Richard Nixon, would have referred to the panic of 1893 as a "growth correction.'" - Money: Whence It Came, Where It Went
On a lighter note, we've compiled this history of advice that we have received from the majority of certified financial planners and wealth managers since iTulip's inception in 2001:
- Year - Advice: "Reason."
- 2001 - Sell gold, buy stocks: "The market's experiencing volatility and gold has peaked."
- 2002 - Sell gold, buy stocks: "The market's experiencing volatility and gold has peaked."
- 2003 - Sell gold, buy stocks: "The market's bottomed and gold has peaked."
- 2004 - Sell gold, buy stocks: "The market's going up and gold has peaked."
- 2005 - Sell gold, buy stocks: "The market's going up and gold has peaked."
- 2006 - Sell gold, buy stocks: "The market's going up and gold has peaked."
- 2007 - Sell gold, buy stocks: "The market's going up and gold has peaked."
- 2008 - Sell gold, buy stocks: "The market's experiencing volatility and gold has peaked."
- 2009 - Sell gold, buy stocks: "The market's bottomed and gold has peaked."
The gold price will peak some day, but we're glad we haven't been holding our breath on gold since 2001 or Treasury bonds since 1998.
Per $1 million returns
iTulip Select: The Investment Thesis for the Next Cycle™
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