Recession, Depression, Inflation, Stagnation?: Economic Concepts That Matter
The public is often bombarded with a variety of economic terms that often, instead of helping the untrained to better understand, simply confuse them. How often have we heard terms like recession, depression, inflation, stagnation, etc., but many only have a limited understanding of what that means? As a former, licensed, representative, and director of a financial services company, I have learned and developed an understanding and appreciation of what they mean and their potential impacts. I often try to make others feel more comfortable by joking that the difference between a recession and a depression is that it’s the former, when it happens to you, but the latter, when it affects me! With that in mind, this article will briefly attempt to consider, examine, review, and discuss these four concepts/principles, and what they mean and represent.
1. Recession: A recession is generally defined as a period of temporary economic/financial decline, when trade, industrial activities, and other economic indicators are identified in at least two consecutive quarters. It is usually reviewed in terms of Gross Domestic Product, or GDP, which measures overall economic performance in a specific nation. Often the Federal Reserve Bank uses various tools/methods to try to improve activity, including lowering interest rates, etc.
2. Depression: When the recession becomes even more severe and lasts for a significantly extended period of time, it is often considered a depression. We could see either a specific component of the economy being depressed, like housing or industry, specific or general. Almost everyone is familiar with the period that began in 1929 and spanned several years, known as the Great Depression.
3. Inflation: Inflation is the rate at which a specific currency (or currencies) falls, resulting in an overall increase in the prices of most goods and services. The usual pattern of the Federal Reserve Bank is to increase the costs of borrowing money, also known as interest rates. In most cases, when these increase significantly, many people find that their salaries do not keep up with the rate of inflation.
4. Stagnation: When we refer to stagnation, in economic/financial terms, it refers to a significant period of little or no significant activity, growth and/or development. When this occurs, for an extended period of time, it usually creates a loss of employment opportunities and often more unemployment. Historically, governments have used a variety of economic stimuli to strengthen general economic activity and hopefully restore us to a stronger and better financial condition.
When it comes to money matters, the more you know, the better we can be by being prepared for eventualities. Learn as much as you can, for your own interests.