Economic Depression (what is the influence on the economy)

In economic jargon, mention is made of different economic situations that a nation is known to go through. Crisis, recession Y depression They are the best known and have in common that they refer to adverse situations and decreasing economic and social well-being of the country in question.

It is worth noting that all economies are cyclically exposed to traditional recessions. When that recession lasts for a long time, the most appropriate thing is to talk about economic depression, which corresponds to the drop in production and all that this entails. As production decreases, the income of workers and entrepreneurs falls in an equivalent way, although generally the working class is the one who bears the brunt of the stagnation or fall of the economies.

Economic depression concept

It is understood by economic depression the phase after the crisis, according to most economic theories, the depression is the result of the fall in demand, which It manifests itself with the decline in investment and wages, which in turn has an impact on purchasing power and therefore on the level of consumption.

In simpler words, an economic depression is a difficult stage of decline in a country's economic activity. In this phase of the economic cycle, it is understood that the national economy is at the bottom, so there are situations of deflation or hyperinflation that are sustained over time.

When are we facing an economic depression?

There is no confirmation on when a recession is considered a depression, nor is there an average that determines a depression, some Economists have tried to establish it as a decline in GDP above 10% or a situation of consecutive and prolonged recession for more than 3 years.

So it is usually referred to a depression when the recession is accentuated over time and the main aspects of economic activity do not experience change or improvement.

Characteristics of an economic depression

The main characteristic of depression is the severe decrease in all activity in the field of finance and business, which strongly affects companies and entities banking. However, depression is more than that, so here are the characteristics and consequences for recognizing an economic depression:

• It comes after a strong economic recession.
• It entails the quite marked decrease in GDP (Gross Domestic Product).
• Alarmingly increasing the unemployment rate.
• Credits are frozen in different economic sectors.
• Large investment losses occur in different areas and sectors of the market.
• It leads to the closure and bankruptcy of banks and companies.
• There is a panic or fear of investment in the country.
• There is a clear decrease in production that extends over a long period, which at times almost paralyzes the country's economy.
• Regarding the conditions and standard of living of the citizen, there is a series of deterioration, so there is discontent and in some cases frustration at not being able to stock up on food, clothing and enjoy some moments of recreation.
• Sometimes crime increases, driven by the needs and despair of the population.
• Situations such as hyperinflation can occur, which is when prices rise uncontrollably and deflation, which is the opposite, prices fall excessively.

Depressions in history

Throughout the world throughout history there have been some severe economic depressions among these the most remembered are:

Panic of 1837

It was a wave of economic panic in the United States, as a result of strong speculation, New York broke out, because banks stopped making payments in silver and gold coins.

This is followed by a crisis that lasted five years, banks fail and unemployment levels rise dramatically.

It is considered that the causes were the wrong policies of the president at that time Andrew Jackson.

Long Depression of 1873

For the time it was known as the Great Depression, it lasted from 1873 to 1896. It was so strong that it affected much of the world.

The crash of 29

It is also known as the 1930 depression, in that year a depression moved by the New York Stock Exchange began, it spread rapidly, it affected most of the industrialized countries around the world, although it is considered that the worst affected was the United States. United. This crisis lasted until 1933, during these years the national income, sales, and tax revenues fell notably, in the same way unemployment reached 25%.

Great depression of 2008

A well-known global crisis that started in the US in 2008. One of the main causes of this crisis is the failed economic regulation, bank crime and corruption, the overvaluation in the products, accompanied by a strong energy and food crisis worldwide and the constant recessive threat that was experienced to date throughout the world. world.

After reading all this important information, it is clear that economic depression occurs in a situation of serious economic crisis, which can affect any country in the world and are characterized by the sustained and generalized decrease in production and consumption, which is indisputably accompanied by a high level of unemployment and the closure or bankruptcy of some Business.

Some economists consider the economic depression as aextreme economic recession, which considerably affects its economic activity, undoubtedly bringing the decrease in GDP and many other factors mentioned above that cause the decline in the lives of citizens.

To cope with and get out of these crises, it is necessary for the government to implement economic measures that favor and encourage national production, however the The government alone cannot achieve good results, it is a general effort of the population, private companies and the state that will succeed in moving the country's economy forward in question.