Recession, depression, or not? What some experts think will happen

Among the best-selling books the past few years have been those advising readers how to survive, if not profit from, the coming economic depression.

These doomsayers predict the United States, and most of the rest of the world with it, are headed for an economic collapse as deep and traumatic as the Great Depression of the 1930s.

Most prominent economists, however, contend a replay of that kind of crisis not only is unlikely, it's probably impossible because of the legislated safety nets such as unemployment insurance, federal insurance of savings banks, and entitlement programs including Social Security and others.

''We're not looking at a depression by any means,'' emphasizes Joseph Wahed, vice-president and chief economist at Wells Fargo Bank in San Francisco. ''No one should even raise the alarm unnecessarily because a depression is not in the cards.''

He's predicting a bottom to the US recession this summer, marking the beginning of a rebound that will carry through the year and into 1983 as the nation regains economic stability and President Reagan's economic programs begin producing results. Other economists see a similar timetable for recovery.

Milton Hudson, senior vice-president and head of the economic analysis department at Morgan Guaranty Trust in New York City, sees only a 1 in 200 chance of a depression. Larry Kimbell, director of the Business Forecasting Department at the Graduate School of Management at UCLA, puts the odds at ''one in a billion.''

Kimbell nevertheless cautions chances are 50-50 for a prolonged, deep recession lasting five years if unemployment stays around the present 9 to 10 percent, if President Reagan and Congress don't get their economic/ monetary acts together, and if interest rates don't begin shrinking.

The risk is ''very real'' for unemployment to hold at 10 to 11 percent, highest in the post-war years. There already are pockets of depression in the US where unemployment is as high as 20 percent. Oregon, for example, is crippled by a lumber industry hobbled by the national housing slump. Detroit, of course, is hard hit by shrunken sales of US-made cars.

Businesses are failing at a record pace, persistently high interest rates have dampened capital formation--which means less to invest in plants, equipment , and plant expansions--profits have been weak and, adjusted for inflation, are probably at the lowest percentage level since the end of World War II.

Still, Dr. Geoffrey Moore sees only ''an outside chance'' of a depression. The US economy of today is vastly different from that of the 1930s, mainly because a service economy has evolved. That makes unemployment much more stable than it used to be, says the director of the Center for International Business Cycle Research at the Graduate School of Management at Rutgers University's Newark, N.J., campus.

But one expert not totally out of step with the doom and gloomers is Dr. Edward Yardeni, chief economist with the Wall Street investment firm E. F. Hutton & Co. He contends there's a 30 percent chance of a depression. The US economy, he says, ''just keeps stalling out.''

While more optimistic economists discount the likelihood of an American depression because of the safeguards built into the system since the 1930s, he points out a depression in the 1980s doesn't necessarily have to follow a 1930s script.

''Sure, we've got all kinds of safeguards but they're designed to avoid a repeat of the depression 50 years ago. I'm not saying we may have a 1930s style depression and I'm not even saying a 10-year depression,'' Dr. Yardeni comments.

''There's no offical definition of a depression. My main point is make a list of the healthy and sick industries in this country and 90 percent of them are on the sick list--autos, housing, savings and loans, the energy industry, machine tools, farms, oil rigs. The only strong industry may be defense,'' he says.

Bank and thrift deposits may be insured ''but who's going to insure all the billions of dollars of assets of the money market mutual funds if there's a run on those funds?'' he asks. ''Who's going to keep the commercial paper market open if there's a string of corporate bankruptcies? Who's going to make good on all the short-term corporate debt out there?''

His concern is with the rising number of bankruptcies (a level aided by bankruptcy laws liberalized two years ago), the steady increase in short-term business borrowings, and the alarming gains in corporate illiquidity.

''In the 1930s, sure, there was a mountain of margin debt for stock purchases. In the 1980s, maybe it's all this corporate debt that was built up because of high inflationary expectations,'' he says. ''Now inflation is almost a non-event, falling sharply in recent months, yet there are still a lot of corporations out there carrying a lot of debt.

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