CHESSNOID

We may not want to hear it but I now believe those bloggers who predicted we would go into a depression.  I believe this severe recession started by Bush will develop into a depression under Obama.  There is no standard definition of this economic state, but if you heard the way those who lived in the Great Depression describe that era you could make an argument the depression is already here.  ABC:

A Depression doesn’t have to be Great — bread lines, rampant unemployment, a wipeout in the stock market. The economy can sink into a milder depression, the kind spelled with a lowercase “d.”

And it may be happening now.

The trouble is, unlike recessions, which are easy to define, there are no firm rules for what makes a depression. Everyone at least seems to agree there hasn’t been one since the epic hardship of the 1930s.

But with each new hard-times headline, most recently an alarming economic contraction of 6.2 percent in the fourth quarter, it seems more likely that the next depression is on its way.

“We’re probably in a depression now. But it’s not going to be acknowledged until years go by. Because you have to see it behind you,” said Peter Morici, a business professor at the University of Maryland.

The last unemployment that came out today said we lost about 700,000 jobs last month. CNN:

The survey of households found 12.5 million people are now unemployed, the most since records started being kept in 1940.

The U.S. economy has now lost 4.4 million jobs since the start of 2008. To put that in perspective, that’s about equal to the total number of jobs in each of the following states — Georgia, Michigan and North Carolina — at the end of 2007.

We are expected to go at that pace of 500,000 or more in the next few months. I know it is only 8% which is no where near the percentages back in the Great Depression, but our population is much greater than the 1930s. Look how 12.5 million unemployed today compares to the actual Depression unemployment statistics  in the chart. The lower percentages we have right now already match the physical number of people.  A few more percentages up will hurt our current economy exponentially.

We continue to  have record breaking numbers of  foreclosures every month, all the major banks are in trouble, and now the biggest government deficit spending ever is under way.  You may not believe we are in a depression, but all the signs point to it.

Even though our government has given trillions of taxpayer dollars to banks to unfreeze the credit markets, the banks are doing the opposite.  They don’t want to lend with the record bailout money we just gave them. They are doing less loans and canceling credit cards.  I have about 15 posts with hundreds of comments of similar stories on credit cards you can read here on my blog. Click here for the one with over 100 comments.

USA Today:

Banks and lenders are shoring up risks — closing a record number of credit card accounts and reducing millions of dollars in credit lines. As they clamp down, even some consumers with excellent credit and spotless payment records are seeing their credit scores reduced because of the diminished credit lines. That, in turn, can hamper consumers’ ability to get credit elsewhere.

Mary Lou Reid, 61, says two of her credit cards were closed recently because of inactivity, eliminating $47,000 of available credit. Her credit score dropped to 726 from 757. The most widely used credit scores run from 300 (very poor) to 850 (pristine).

“They didn’t give me any warning,” says Reid, of Arcadia, Calif. “One needs to feel in control of one’s life, and what they’ve done here is cut me out of the equation.”

As lenders’ appetite for risk wanes, they’re pulling back on an unprecedented amount of credit — up to $2 trillion on cards alone by 2010, estimates analyst Meredith Whitney.

“It becomes this self-fulfilling problem,” says Mark Zandi, chief economist at Moody’s Economy.com. “Lenders cut credit lines, and if consumers simply do what they had been doing, their credit score could fall. Other lenders respond by cutting their own lines or raising rates.”

The cycle concerns consumer advocates and some legislators. Some wonder whether restrictions should be imposed on lenders’ ability to slash credit limits and close accounts. And if scores can drop even if consumers do nothing wrong, they say, it raises the question of whether there’s a flaw in the credit scoring formulas relied upon by the nation’s lenders, insurers, and increasingly employers and landlords.

USA TODAY, in previous stories in its “Credit Trap” series, has reported that during the housing boom, banks sharply raised card limits in part because of a surge in home equity, then guided borrowers to use mortgages to pay off card balances.

Now, when it’s already difficult to qualify for loans, lenders’ actions can lead to deteriorating credit scores that can put much-needed credit out of reach for a growing number of consumers. Those who get loans may have to pay higher interest rates. Lenders also may seize upon lower credit scores to increase interest rates, pushing consumers deeper into distress.