Depression

AAA

DEFINITION of 'Depression'

A severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts two or more years. A depression is characterized by economic factors such as substantial increases in unemployment, a drop in available credit, diminishing output, bankruptcies and sovereign debt defaults, reduced trade and commerce, and sustained volatility in currency values. In times of depression, consumer confidence and investments decrease, causing the economy to shut down.

INVESTOPEDIA EXPLAINS 'Depression'

A depression is a sustained and severe recession. Where a recession is a normal part of the business cycle, lasting for a period of months, a depression is an extreme fall in economic activity lasting for a number of years. Economists disagree on the duration of depressions; some economists believe a depression encompasses only the period plagued by declining economic activity. Other economists, however, argue that the depression continues up until the point that most economic activity has returned to normal.


The Great Depression began shortly after the Oct. 24, 1929,U.S. stock market crash known as Black Thursday. The stock market bubble had burst and a huge sell-off began, with a record 12.9 million shares traded. The United States was already in a recession, and the following Tuesday, on Oct. 29, 1929, the DJIA fell 12% in another mass sell-off, triggering the start of the Great Depression.

Many investors' portfolios became completely worthless. Although the Great Depression began in the United States, the economic impact was felt worldwide for more than a decade. The Great Depression was characterized by a drop in consumer spending and investment, and by catastrophic unemployment, poverty, hunger and political unrest. In the U.S., unemployment climbed to nearly 25% in 1933, remaining in the double-digits until 1941, when it finally receded to 9.66%.

Shortly after Franklin D. Roosevelt was elected President in 1932, the Federal Deposit Insurance Corporation (FDIC) was created to protect depositors' accounts. In addition, the Securities and Exchange Commission (SEC) was formed to regulate the U.S. stock markets.

RELATED TERMS
  1. The Great Recession

    The steep decline in economic activity during the late 2000s, ...
  2. Graveyard Market

    A prolonged bear market where existing investors want to get ...
  3. Economic Stimulus

    Attempts by governments or government agencies to financially ...
  4. Black Thursday

    The name given to Thursday, Oct. 24, 1929, when the Dow Jones ...
  5. Contraction

    A phase of the business cycle in which the economy as a whole ...
  6. Economic Collapse

    A complete breakdown of a national, regional or territorial economy. ...
RELATED FAQS
  1. Why have austerity policies failed to stabilize Greece's economy?

    Austerity policies are intended to reduce government debt and bring stability to that nation's economy. Austerity's effectiveness ... Read Full Answer >>
  2. What are the typical day-to-day responsibilities of a Chief Operating Officer (COO)?

    A country's debt crisis affects the world through a loss of investor confidence and systemic financial instability. A country's ... Read Full Answer >>
  3. What impact does disposable income have on the stock market?

    In theory, the impact that disposable income has on the stock market is that a widespread increase in disposable income leads ... Read Full Answer >>
  4. What impact does inflation and deflation have on a blue-chip stock value?

    Inflation and deflation, though opposite scenarios, are quite similar with regard to the havoc they can wreak on an investor's ... Read Full Answer >>
  5. How do investors lose money when the stock market crashes?

    Over the last hundred years, there have been several large stock market crashes that have plagued the American financial ... Read Full Answer >>
  6. What are the main risks to the economy of a country that has implemented a policy ...

    The main risk to the economy of a country that has implemented a policy of austerity is the potential for a self-reinforcing, ... Read Full Answer >>
Related Articles
  1. Active Trading

    Is A Reversal On The Way? Consult Traders' Index

    Use this indicator to gauge the end of a price trend.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  4. Personal Finance

    The Crash Of 1929 - Could It Happen Again?

    Learn about the series of events that triggered the Great Depression.
  5. Entrepreneurship

    The Impact Of Recession On Businesses

    Find out how this economic cycle affects both small and big business.
  6. Economics

    What Caused The Great Depression?

    Learn how government actions may have contributed to this major economic downturn.
  7. Personal Finance

    Recession And Depression: They Aren't So Bad

    Financial downturns are part of the economic cycle and may have important long-term benefits.
  8. Budgeting

    The Greatest Market Crashes

    From a tulip craze to a dotcom bubble, read the cautionary tales of the stock market's greatest disasters.
  9. Personal Finance

    Five Of The Largest Asset Bubbles In History

    The five bubbles discussed here were among the biggest in history; their lessons should be heeded.
  10. Economics

    Explaining Growth Rates

    Growth rate refers to the amount a specific variable or measure has grown over a specified time, whether related to one company or an entire economy.

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!