I may not have a degree in economics but, neither do these AP writers who wrote about recessions turning into depressions. As someone who reads a great deal of works from the Austrian School of Economics, there is just an enormous amount of misinformation in that particular AP article.

The article wastes time by going into what defines a depression. I don’t see how the terminology is going affect the real situation that people are facing. So while the article tries to define what a depression is, it makes many economic fallacies.

“Morici says a depression is a recession that “does not self-correct” because of fundamental structural problems in the economy, such as broken banks or a huge trade deficit.”

There are no such things as recessions or depressions that do not self-correct. They always self-correct. The depression or recession can also be called a correction. It is a correction on a massive scale due to the massive boom created by artificial means–eg: arbitrary interest rates set by a central bank.

When stock prices go up to astronomical levels in respect to the company’s earning potential, then there is a bubble. When that bubble bursts and the stock price pulls back, we call it a correction. It is exactly the same when entire industries or economies are in a bubble and that bubble bursts. A correction is taking place. To try and stop the correction is trying to maintain an illusion.

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Sears Chairman, Eddie Lampert, suggests that stockholders should read Hayek in these troubling economic times. He specifically suggests Road to Serfdom and The Fatal Conceit.

Sadly, I have not actually read these two works by Hayek–I really should. It is nice to see that Lampert is suggesting stockholders to read about the Austrian viewpoint of the situation we are in. It is good to see that not every head of big corporations are capitalists in good times and socialists in bad times.

“As a country, we need to rebuild confidence and trust and to understand what happened. Whether by business or by government, the misdiagnosis of situations leads to poor prescriptions for rehabilitation and recovery. When the misdiagnosis is done at the federal government level and involves large parts of a national economy, the consequences can be swift and significant.”

We absolutely need to understand what happened. The mainstream media has misdiagnosed the problem and is applying the wrong treatment. The swift and significant consequences of a poor prescription will be a long and extended depression.

I am mostly in shock at the size of this budget. Our GDP is about $14 trillion. This budget for 2010 is a quarter of our entire GDP. That seems pretty big to me–not that $3.55 trillion isn’t a massive number by itself. The deficit will be greater than the GDP of our neighbors above–Canada.

Obama’s plan to cut the deficit by 50% to about $533 billion in 2013 is becoming less and less believable. Not only is the budget for 2010 ridiculous but, Obama intends to increase spending to $3.94 trillion for this year. All of this is bad for the economy. Increases in government spending is a decrease in productive spending in the private sector.

“The deficit would remain near $1 trillion over the next two years before dropping to $581 billion in 2012 and $533 billion in 2013, the year that Obama has pledged to cut the deficit he inherited in half.”

The first thing you do to get yourself out of a hole is to stop digging. Obama believes that you should dig at an even faster rate. We are now going to sink faster and deeper.

In order for Obama’s budget plan to work, he is assuming that the economy “will come roaring back with economic growth of 3.2 percent next year and 4 percent-plus rates in the following three years”. Right. His stimulus bill is going to make things worse so this highly optimistic idea of economic growth is wishful thinking.

These massive budget deficits planned for the next 4 years is going to skyrocket the national debt. We are talking about adding over $4 trillion to the national debt. The national debt is currently about $11 trillion. If we add another $4 trillion to that, our national debt will be greater than our GDP.

The financial and economic side of the Obama administration is clearly out of their minds. It is going to be difficult for the dollar to survive this and for the American economy to thrive with these massive burdens. It is important to remember that governments cannot create prosperity.

I received my copy of Meltdown by Thomas E. Woods Jr. this weekend. Amazon always does a great job of getting the books I order to me quickly–I ordered on Tuesday and used free shipping. I’m always looking to further my knowledge of Austrian Economics in layman terms–I like things that are easy to understand.

I’m also reading a couple of marketing books in conjunction with Meltdown so im not blazing through it. It is so far so good. I like the way Tom Woods makes things pretty simple to understand. I’m willing to bet it will clear up a few more things for me regarding the Austrian theories behind the boom and bust as it relates to this current crisis.

TommyLiberty also has a new design that I–more or less–finished this weekend. The great thing about the internet is how changes can be made instantly. I’ve already made a few adjustments after I made this new design live–it’s great.

I think the site looks sharper and more organized now. Regardless of what the site looks like, the purpose is still to promote the cause of Liberty!