The Best Recession <> Depression Chat Ever

Written by Jeff Gunther

On May 15, 2020

What follows are notes prepared and shared by my friend John Diack on a recent web-conference. You are invited to view the full discussion and access source documents: Recession or Depression: Why What Happens NEXT Matters.

Goals for this chat:

  • prepare to be our very best as humans, regardless…
  • prepare to be our very best as investors, regardless…
  • focus on a level of well-being that gives us (and those around us) resilience


Recession – a period of temporary economic decline

  • fall in GDP for 2 successive quarters

Depression – a period of extended economic decline

  • real GDP drops 10%
  • a recession lasting 2 or more years

Past Recessions:

1980: 6 months; ~10% US unemployment; – 2.2% GDP

1990: 8 months; ~7.8% US unemployment; -1.4% GDP

2000: 8 months; ~6.3% US unemployment; – 0.3% GDP

Past Great Recession:

2008: 18 months; ~10% US unemployment; – 5.1% GDP

Past Depression:

1933: 43 months; ~25% US unemployment; – 27% GDP

Recession Characteristics:

  • usually returns to the previous norm
  • markets & customers are often left mostly intact
  • A/R is stretched but not ‘broken’
  • price compression is often the result of a recession
  • the pressure on personal well-being & resilience is lower

+ Cash flow is the key to survival; a strong balance sheet is important but not as critical

Great Recession Characteristics:

  • the path to recovery was hard to call
  • markets mostly unchanged but customers were lost
  • A/R was stretched and often broken
  • price compression lasted longer (than expected)
  • the pressure on personal well-being & resilience was more prevalent

+ Cash flow was critical and a strong balance sheet was important

1933 Depression – conditions:

  • the war had crippled Europe/ a drought crippled the US
  • trade policies dragged the US into the depression
  • governments did not respond well; they did the opposite
  • real-time information/ data/ etc., was not available
  • a tech enabled work from home option did not exist

Things to consider:

  1. was this a perfect storm?
  2. can we even compare 1933 to 2020?
  3. it seems unlikely that these conditions will be repeated

What is driving the Depression dialog?

  • a highly leveraged population & business environment
  • reliance on artificially low interest rates
  • governments have responded well, and, have they exhausted their financial tool box?
  • can governments fight off (risk based) interest rates?
  • will debt to GDP ratios trigger new conditions?
  • will trade policies & a trade war accelerate a decline?

With all that in mind, some business thoughts:

  • opinions range from ‘a minor economic twitch’ to ’10 yrs of suffering & pain’
  • there is NO certainty; there are NO experts
  • if this is a hurricane, consider a defensive posture
  • customer retention is a major priority; revenue innovation likely next
  • keep your powder ($) dry & keep your eyes open

Balance sheet strength becomes a super critical item; +ve cash flow is important but may NOT be sufficient

With all that in mind, some personal thoughts:

  • for those that believe in Jesus, giving your worries to Him, over and over, produces peace and freedom
  • take notice if you are binging (food, media, exercise, working or a combo); this is a well-being flag
  • forcing quiet time into your calendar (force it!!)
  • a good sign…. you are being generous with your wisdom, time and resources
  • a great sign… you are relating, laughing and praising

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