IMF: Depression May Have Already Started

February 7, 2009 by Douglas A. McIntyre

AngrybearFor some countries, it may already be too late to keep their economies in a recession hoping for a recovery late in the year.

That notion would make some sense. In the US and UK, unemployment is almost certainly headed toward 10%. If people out of work and no longer looking for jobs are included, the figure could move much closer to 15%.

Consumer and business spending have virtually shut down because of lack of access to credit. In the US, several major industries may be in the late stages of complete failure. This would almost certainly include the retail and automotive sectors, and could, if the government does not take appropriate action, move to the largest financial firms.

The IMF contends that several of the largest economies are already in depressions. According to Bloomberg, "Advanced economies are already in a depression and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said."

If that analysis is correct, the bottom could last several years. The layoff cycles has hit a the vicious point where the growing number of people out of work further undermine consumer spending which leads to more firings at consumer goods companies and retailers. Each job lost is a series of lost sales for a number of American companies. Those firms are faced with more rapidly falling sales as the year passes

The ride down may just be beginning.

Douglas A. McIntyre