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Econosphere: 'We haven't seen a recession this deep since the 1940s'

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By Dylan Mathews

Big week for business/economic news. First the Wyly brothers, huge GOP donors, were charged with fraud. Then the SEC settled with Citigroup for $75 million. This morning, the government GDP numbers came out for Q2 and showed that the recovery may be losing momentum.

Here's how economists and bloggers are reacting:

GDP

John Curran notes that we haven't seen a recession this deep since the 1940s:

But what should really rock the boat is that the Commerce department did revisions across the full span of the pre-recession and post-recession period. While this big a revision across multiple quarters is not unprecedented, it will be an eye opener to many who commonly compare this recession to ones that occurred in the past two decades. What's now clear is those comparisons were apples to oranges. What we suffered in the past recession -- the depth of the contraction -- hasn't been seen since the 1940s.

Phil Izzo rounds up economist reactions. Here's Jay Feldman of Credit Suisse:

In the recoveries following the severe recessions of the mid-1970s and early 1980s, real GDP averaged 7% in the first year. Real GDP is up 3.2% from the recession low in the current recovery -- not even half as powerful as those episodes. Still, today's recovery is beating the recoveries following the mild recessions of the early 1990s and 2001, where GDP averaged just 2.3% in the first year -- hence we are on a better path than the more pessimistic "U-shaped" or "L-shaped" forecasts.

Daniel Indiviglio highlights the change in export numbers:

The only real black eye in the report came with net exports. They contracted significantly. In the first quarter, they were responsible for slicing just 0.31% off of GDP growth, but last quarter their negative contribution was equal to GDP's entire net growth value. In other words, if Americans didn't buy so many more products from other nations compared to what they sold those countries, GDP growth would have been more than double the 2.4% total.

Ryan Avent provides the relevant charts.

SEC settlements

Daniel Indiviglio thinks the Citi penalty is insignificant:

Citi currently has around 29 billion shares outstanding. If you divide that $75 million over those shares, it could reward investors about one penny for every four shares they own. That's an extra small order of fries from McDonald's dollar menu for every 400 shares they own.

Jessica Pressler mocks the deal's size:

Now, we know you're dying to know: How much is a lie that big worth? How much can a company that (after being bailed out by the U.S. taxpayer) has a market cap of $120 billion afford? How much should the top executives who through sheer negligence allowed their company to accumulate so many worthless securities it became a danger to not only itself but the financial system as a whole, then lied about it, hoping that nobody would notice, have to pay? What price honesty? It's priceless, really. So, the agency went with roughly what CEO Vikram Pandit spends on wine in a year.

By Dylan Mathews  |  July 30, 2010; 3:36 PM ET
Categories:  U.S. Economy  
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Comments

We haven't seen so much debt on consumer balance sheets either. People are using all their resources to pay off debt.

Posted by: jorod | July 30, 2010 8:08 PM | Report abuse

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