Intrade, where you can bet on politics, economics and entertainment, seems to have modified its flawed depression bet. Intrade's depression definition is a GDP decline of more than 10 percent. In the original version, the bet would pay off if annualized quarterly GDP declines added up to more than 10 percent for four consecutive quarters. That means you could win the bet without an actual 10 percent decline in GDP.

The original bet and rules are still on Intrade's site. But there are new depression bets, which Intrade couches in terms of absolute change in GDP dollar value rather than the rates that tripped it up before. (I can't get the link to work, but click here, then on "Financial" and then "Economic Numbers.") But the rules are still problematic. In the new bet, Intrade will trace changes in nominal GDP instead of real, inflation-adjusted GDP. Nobody measures business cycles this way.

The $14.4 trillion, third-quarter GDP (seasonally adjusted annual rate) identified as the economic "peak" in Intrade's rules was a peak only in nominal dollars. The real, inflation-adjusted peak came in the second quarter, as the BEA release shows. The third quarter, which looks like economic expansion under Intrade's rules, was really a decline in GDP after you account for last summer's energy inflation.

Here are Intrade's new rules:

For the purposes of this contract only a "depression" is defined as a 10.0% decline in GDP from its peak value. This market group also contains -15.0% and -20.0% contracts to allow trading on the magnitude of a "depression".

This contract will settle (expire) at 100 ($10.00) if GDP declines by the percentage specified in the contract (or more) from its peak value between Q4 2008 and Q4 2009 (inclusive).

The contract will settle (expire) at 0 ($0.00) if GDP declines by less than the percentage specified in the contract from its peak value between Q4 2008 and Q4 2009 (inclusive).

The data used for expiry will be the final (not advance or preliminary) GDP numbers (seasonally adjusted at annual rates) published quarterly by the Bureau of Economic Analysis as may currently be found on Table 1.1.5. Gross Domestic Product.

Table 1.1.5 will be updated with the final GDP figures after their release. The final GDP figure for Q4 2009 (the last quarter considered for this contract) is expected in March 2010.

For information only the current peak final GDP value is Q3 2008 and was $14,412.8 billion. This figure will be updated if a new peak is established. If any quarterly GDP figure is greater than $14,412.8 billion then a new Peak Value will be established. GDP will then need to decline by the specified amount from this new Peak Value for the contract to expire at 100. For more information on peak values please click HERE.

The formula used to calculate the percentage change in GDP is as follows

((Quarterly final GDP Figure / Peak Value) -1) * 100

For an example of how this formula will be used please click HERE.