Posts Tagged ‘recession’

What’s the difference between a recession and a depression?

Wednesday, August 3rd, 2011

Before the 1930′s, recessions didn’t exist. This doesn’t mean that the economy behaved all that differently than it does now: up until that time, all economic declines were simply called depressions. But after the Great Depression, the term “recession” was coined to separate financial downturns on a lesser scale from those comparable to the catastrophe of the ’30′s.

The common definition of a recession is a drop in Gross Domestic Product (GDP) over two or more consecutive quarters. But economists tend to dislike this definition because it only looks  at GDP, and the two-quarter minimum means shorter recessions can go unnoticed. The National Bureau of Economic Research officially declares a recession after an in-depth analysis of financial information.

A depression is a recession in which the GDP declines by more than 10%, or one that lasts for more than three years. While recessions are pretty common, depressions are not. Only one developed country, Finland, has suffered a depression since the end of World War II. Depression has become a loaded term since the 1930′s catastrophe, and we want to make sure we use it only when the situation is appropriately grave.

A Credit Crunch is…

Wednesday, July 27th, 2011

A credit crunch is a period when lenders are unwilling to provide loans to borrowers. Generally a lender will extend credit to a borrower under the assumption they will be paid back with interest. But when the economy is bad, lenders become hesitant to make loans for fear of losing their money.

Lessons From the Crash: Frank Murtha, Market Shrink (2 of 4)

Monday, April 18th, 2011

Frank Murtha is a psychologist with MarketPsych who specializes in investor behavior. Or misbehavior. Or misconceptions. Well, all of that. His job is to study how people make decisions with their money, and to help us understand (and avoid) common mistakes.

He stopped by to talk to us about how a crashing stock market changes the way investors invest. (Hello, recession of 2008!) Pretty interesting stuff. Check it out:

>> TILE brings you exclusive opinions, explanations, and interviews from experts in every industry. Have a burning question or an expert you’d like to see interviewed? Just Ask TILE!

The Industries That Won’t Come Back

Tuesday, April 5th, 2011

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(photo credit: gruntzooki) For all your after hours tuxedo rental needs.

The recession has caused a lot of problems for our economy, no doubt. But some industries look like they’re just not going to pull through. Specifically, these ten:

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(from The Wall Street Journal)

Good old supply and demand at work. Why buy a newspaper when you can get your news online for free? Why pay for photofinishing when most of your snapshots don’t make it past Facebook?

Are YOU still spending money in any of these industries?

(Bonus points if you can find an industry on this list that wasn’t at least partially laid to rest by the Internet!)

What the Unemployment Rate Really Means

Wednesday, March 2nd, 2011

When they say the U.S. unemployment rate is 9%, does that mean that only 9% of all possible American workers are out of a job?

Nope. The official unemployment rate doesn’t count people who have given up looking for a job. It also doesn’t include people considered “not in the labor force,” like students. And it definitely doesn’t tell you much about the millions of people who are working part-time but can’t find full-time work. (They’re called the “underemployed.”)

Contrary to popular belief, the unemployment rate has nothing to do with how many people are applying for or receiving unemployment benefits. The Bureau of Labor Statistics collects data by actually going out and asking people about their employment status.

Click the chart for Matt Berger’s explanation.

How do you fit into this chart?

Financial Crisis Inquiry Commission: Stop Fighting, Guys – It’s Everyone’s Fault

Thursday, February 3rd, 2011

“The 2008 financial crisis was ‘avoidable’ and brought on by the actions of government officials and private-sector players, according to a blue-ribbon panel’s draft report that spreads blame broadly for the meltdown.

The Financial Crisis Inquiry Commission’s draft report singles out federal banking regulators for particularly sharp criticism, saying that ‘the prime example’ of the system’s shortcomings was ‘the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages’ over the past decade. But the report also has harsh words for both ‘captains of finance’ and Main Street lenders.”

What do you think?

Who do you think has earned more blame for these bad business decisions – businesspeople or the regulators that are supposed to be setting and enforcing regulations? How have you been affected by the financial crisis?

Americans Open Wallets Wider Than They Have In Three Years

Wednesday, February 2nd, 2011

The financial times they are a’changing. At least, that’s what these new statistics would have us believe…

  • In 2009, the American GDP (gross domestic product – a measurement of economic activity) dropped more than it had in sixty years. But like a phoenix made up of economic statistics, it rose back up in 2010.
  • We can’t know the exact cause, but the numbers say that people earned a little more, saved a little less, and spent a little more than they had in recent years.
  • Since consumer spending makes up almost three-quarters of all economic activity in the U.S., this is good news. But there are still those issues around high unemployment and a trashed housing market…

Facts & Figures

  • Consumer spending represents 70% of all economic activity in the U.S.
  • In 2010, spending rose by 3.5% – 0.7% of that was in December alone
  • The last time spending rose that high was in 2007 (pre-recession)

What do you think?

Have you been spending more lately? Do you think the economy will recover faster depending on where you spend your money (at independent stores versus chains)?

(Check out this week’s Today at TILE for a closer look at signs of life in the economy.)

Bank Bargains? Bank Share Prices Sooooo 2009 While Other Industries Soar

Monday, January 24th, 2011

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credit: Toni Birrer

Stock market investors have been enjoying the biggest rally in five years – except for investors in banks. Bank stock prices – already stuck at 2009 levels – took hits as reported earnings from last year for big banks like Citi and Goldman Sachs failed to wow.

  • Each quarter, publicly-traded companies are required to report their earnings to investors. This is the time of year when we get an inside look at how different companies, industries, and economies are really doing.
  • Though banks reported big profit increases, it wasn’t enough to wow (or woo) investors.
  • While some investors see an opportunity, others are waiting-and-seeing.

Facts & Figures

  • The last time investors could buy bank stocks at these prices was March 2009
  • Back then the economy had been in a recession for about 14 months, and the S&P 500 was at a 12-year low
  • But all that has changed: the 500 companies tracked by the S&P500 index gained an average of 30% in 2010

Best Quote

“What everyone is waiting for is a sign that the companies are really back, that they’re really on their feet again and can survive without continued government support and subsidy.” – John Carey, Money Manager at Pioneer Investments

What do you think?

Do these low prices make you want to invest in a bank right now? What would you need to find out before deciding? Answering these questions can help you figure out your risk tolerance, which is essential for any young investor. This will help, too.

How To: Survive A Conversation About The Economy This Week

Friday, January 7th, 2011

Looking for a job or a great deal on a condo? Well Ben Bernanke has some news for you! Our Treasury Secretary and the U.S. Senate got together today for a little chat about the state of the economy. Ben says:

“We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold.”

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credit: kevindooley

The story:
Basically, Americans are starting to spend more money on everything besides real estate. That’s pretty good. But the unemployment rate is still 9.4%, which is bad. In fact, it may take up to five years for the job market to get back in shape.

The plan:
So what’s the plan? First of all, Bernanke practically begged lawmakers to get their rear in gear and rearrange the federal government’s disastrous spending habits (which have led to bigger and bigger budget deficits over the years). And then there’s… quantitative easing!

The important thing you don’t understand but easily could if you just read this:
Friends, it’s time you learned what quantitative easing is. Basically, it’s a way for the government to pump more money into the economy without causing crazy inflation, which would make all that new money worth a lot less.

Here’s how it works: the Treasury prints some money for itself, and uses that money to buy stuff (mostly bonds) from banks and financial institutions throughout the country. Bam! More money in the economy.

But flooding the economy with cash usually causes inflation (which means your dollar will buy less than it used to). So the Fed is working hard to keep the inflation rate below 2%. But you probably don’t need to get into all that detail in a friendly conversation.

So now you know.

U.S. Companies Sitting On Piles Of Cash, Not Hiring

Wednesday, October 27th, 2010

Where did all the money go after the recession hit? Well, some of it appears to have gotten stuck at the top of the consumption chain...

  • Moody’s Investor Service reported this week that U.S. companies are “hoarding” almost $1 trillion with no intention of expanding business or hiring new employees.
  • The future of the economy is still unclear, so these companies are likely holding out on growth activities until they can be sure of success.
  • During the economic crisis, many companies cut costs, downsized, and sold corporate bonds to raise the cash.

Facts & Figures

Current cash holdings, by sector:

  • Technology – $207 billion
  • Pharmaceuticals – $124 billion
  • Energy – $105 billion
  • Consumer Products – $101 billion

Best Quote

“We believe companies are looking for greater certainty about the economy and signs of a permanent increase in sales before they let go of their cash hoards, which they suffered so much to build.” – Moody’s Investor Service report