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. Deflation

    A general decline in prices, often caused by a reduction in the ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
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. Economics

    What Caused The Great Depression?

    Learn how government actions may have contributed to this major economic downturn.
  6. Entrepreneurship

    The Impact Of Recession On Businesses

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

    3 Major Risks For Annaly’s Investors

    Thanks to its double-digit dividend yield, Annaly Capital Management has long been a favorite among income-seeking investors.
  10. Investing

    Looking To Invest In the Third-Largest Pharmacy?

    Rite Aid Corporation's $4 billion purchase of the Eckerd retail pharmacy chain during the Great Recession might not have been its savviest decision.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center