The case for optimism

Times are tough. But we may be past the worst of it.


The case for optimismIn 2004, Paul Kasriel fired a shot across the bow of American optimism. The soaring housing market had crossed into the danger zone, he warned. Prices were rising far faster than people’s ability to pay, and a collapse was all but inevitable. Others had raised fears about the emerging housing bubble too, but Kasriel, an economist with the Northern Trust Company in Chicago, was one of the few to fully grasp the threat posed to the economy. Banks were heavily exposed to residential mortgages. A plunge in the price of homes would infect the financial system, he predicted, and from there it would spread to the wider economy, sending it spiralling into a deep and punishing recession. As we all know by now, few wanted to hear what he was saying. Officials in Washington clung to the myth, widely held at the time, that U.S. house prices never fall. Pundits scoffed at Kasriel’s dire predictions. “I was the skunk at the garden party,” he says.

Fast forward to today. Everything Paul Kasriel envisioned has come true, and then some. House prices are in free fall the world over. Investor portfolios have been decimated, leaving people suddenly feeling poorer. America’s biggest banks have failed or are wards of the state. GM teeters on the edge of bankruptcy, as do whole countries. Here in Canada we think of ourselves as better off, but our stock market has plunged, commodity prices have dropped and the housing market is suffering. And every month brings another round of brutal job losses on both sides of the border. So what does Kasriel make of this grim situation? “I’m actually feeling cautiously optimistic.”

That someone with such a knack for spotting serious trouble instead sees signs of hope is remarkable. Every day the airwaves, blogs and newspapers are filled with alarming forecasts from economists and financial experts. Time and again, we are told the world is headed for another Great Depression. Some argue we’re already there. And still others have taken doom-casting to the next level, predicting global strife as the logical conclusion to the downturn. Historian Niall Ferguson recently proclaimed, “There will be blood . . . It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme.” One newspaper columnist went so far as to ask, “Will this recession lead to World War III?”

In the opinion of Kasriel and other more level-headed observers, what’s really needed now, frankly, is for everyone to take a deep breath. This isn’t another Great Depression. There won’t be hobos riding the rails or huge lineups at soup kitchens. In fact, for all the problems facing the economy, some experts are making a cautious case for optimism. There’s a growing feeling that the economy could find its footing far sooner than many are expecting, a result of how dramatic the declines have been as well as the response by central bankers and governments around the world. This isn’t to say the economy is going to immediately pull out of its downward descent, or that the Dow will magically return to the levels it was at before the crisis. But it’s enough for Kasriel to begin to revise his outlook. “I’m not a raving optimist, but there are things I see that give me some encouragement,” he says.

For Canadians worried about where our economy is headed, it all comes down to how quickly the U.S. can recover. With our extensive trade ties, Canada is deeply invested in America’s economy; any signs it’s improving will give a strong hint as to when Canada will pull out of its recession.

Paul Kasriel’s change of heart is one positive sign. So might be the fact that few prognosticators share his confidence at the moment. Maybe it’s encouraging that, just like in 2004, everyone is dismissing his more upbeat view. In the same way most forecasters were blindly optimistic three to four years ago, many of that same group now refuse to see anything but terrible times ahead. “When the preponderance of data is one way or the other, it is psychologically difficult to have a counter-trend view,” Kasriel says. “This is why most economists are useless. The same ones that missed the downturn are probably going to miss the upturn.”

It can be hard to be optimistic when you consider who’s in the doom and gloom camp. Stephen Jarislowsky, 83, is one of Canada’s most respected investors. As the founder and chairman of Montreal-based fund company Jarislowsky Fraser Ltd., he amassed a fortune estimated at $1.4 billion by making shrewd bets on companies when they were out of favour. But when he looks at the situation today, he fears the worst. “The Great Depression is the best comparison to what we’re going through now,” he says. “Anyone who thinks less is fooling themselves.”

Jarislowsky, unlike so many other market commentators today, actually lived through that financial crisis as a young boy in Holland during the 1930s. “I remember a whole bunch of poor people walking around the streets selling anything they could, like peanuts, hoping that somebody would buy out of semi-charity,” he says. Does he think the economy will get that bad again for individuals? “The way things are going now, we’re going to get there in a handbasket because the government is totally incapable of handling it.”

Dire stuff, indeed. But then again, it’s always difficult to know how much to credit a particular prediction. Jarislowsky himself, though he warned two years ago that the U.S. might face a recession, was still advising newspaper readers to invest in American companies like Procter & Gamble and General Electric, calling them “reasonably safe.” Those stocks have since tanked, along with the rest of the market. And yet Jarislowsky is hardly alone. Billionaire George Soros, former U.S. Federal Reserve chairman Paul Volcker and even President Barack Obama have all warned that this crisis has the potential to morph into another depression.

But there is a long history of this kind of declinism in North American financial circles. In almost every major downturn since the Second World War, economists, politicians and newspapers have sought to convey popular fears by drawing comparisons to the Great Depression. Ronald Reagan, in his first speech as president, warned the U.S. was in the “worst economic mess since the Great Depression.” Yet the current downturn is still not even as severe as some of the deep recessions that hit over the past several decades, and from which the economy fully recovered.

It helps to recall just how brutal life was for people living through the 1930s. More than a quarter of all U.S. workers lost their jobs back then, while the average wage plunged by 40 per cent. So far during this downturn, unemployment in the U.S. has risen to 8.1 per cent, which means there’s still some way to go before reaching the 10.8 per cent unemployment level seen during the 1982 recession. American wages even eked out a modest gain in February, despite the loss of 651,000 jobs. In Canada the gap between the present downturn and the recession of the 1980s is even wider, never mind how dismal the job market was during the Great Depression. In January, nearly 130,000 workers lost their jobs, sending the unemployment rate to 7.2 per cent. On March 13, Statistics Canada will update its job numbers for February, and economists expect another round of painful job losses. Yet while Canada is clearly in the throes of a nasty recession, unemployment is still relatively close to the 33-year lows we saw in 2007, when it ran at six per cent. Not even the most dour of economists expect Canada’s unemployment rate to reach even the 11.4 per cent mark we hit in 1993, when former prime minister Kim Campbell warned Canadians not to expect a return to single digits any time in the next decade.

Nor are economies experiencing anything like the slowdowns felt in the 1930s. In the first three full years of the Great Depression, America’s economy shrank an astonishing 28 per cent. When America’s GDP fell by 6.2 per cent in the last quarter of 2008, it sparked fears a depression-era contraction was under way. Yet the thing to remember is changes in GDP are expressed at annual rates. The actual decline in the fourth quarter was a far more mild 1.6 per cent, and though the recession began in 2008, the economy actually eked out a 1.1 per cent gain from the year before. No one doubts this year will be rough. Even Kasriel expects the U.S. economy to shrink by three per cent overall. But that would still make this recession only marginally worse than the one that occurred in 1982, and not even close to the depths of the Dirty Thirties.

In Canada the economy is certain to shrink, but there is light at the end of the tunnel. That’s been the message all along from Bank of Canada Governor Mark Carney, who has emerged as the country’s leading optimist. He originally said to expect a recovery later this year, but has since been forced to push that date back to early 2010. Even so, a quick glance at Canada’s economic performance over the past quarter century provides some hope we’ll emerge from this recession with somewhat fewer scars. From 1981 to 1982 Canada’s GDP plunged 4.9 per cent, peak-to-trough, with another drop of 3.4 per cent between 1990 and 1992, according to Doug Porter, deputy chief economist at BMO Capital Markets. This time around, he is forecasting a decline of around 3.1 per cent, though he cautions that could still rise. Fortunately, the Canadian economy was in far better shape before the current recession struck. In the last two recessions, for instance, the country faced double-digit interest rates. In the recession of the early 1990s there was the added problem that Canada’s finances were in shambles. “The governments couldn’t support the economy because they were battening down the hatches and dealing with huge deficits,” says Porter.

In the end what really sets this downturn a part from the Great Depression, for individuals at least, are the safeguards that have been put in place. Roughly 9,100 banks went bust during the first few years of the Depression, wiping out the life savings of millions of households. Today bank deposits are insured and backed by government against losses of up to $250,000 in the U.S. and $100,000 in Canada. There is also a social safety net made up of welfare, unemployment insurance and health coverage that was completely absent in the 1930s. There won’t be a repeat of Grapes of Wrath-scale sorrow, with hundreds of thousands of migrant workers forced to watch their children starve. As John Hussman, a Maryland-based fund manager who saw the current crisis coming, wrote in a recent market commentary, “To say that this is ‘the worst economy since the Great Depression’ is like blowing up a crate of dynamite on the Nevada Proving Grounds and saying it is the worst explosion since the detonation of the atomic bomb there. Even if the statement is accurate, the comparison is absurd.”

So why does all the talk of a depression hold such sway over us? Possibly because we’ve just come out of one of the longest booms in North American history. The problem is, this has left a large segment of the population unprepared for what seriously hard times are really like. Many workers today were too young to even remember the harsh downturn of the early 1980s. “We’ve forgotten how to do recessions,” says Glen Hodgson, an economist at the Conference Board of Canada. “This is what a recession looks like. Profits are down. Jobs are being lost. People have stopped spending. We’ve almost become too good at macroeconomic management so when recessions do happen people don’t have it as part of their personal memory.”

Whatever the reason, while most economists and pundits continue to dwell on comparisons with the Great Depression, a small number have turned their gaze to the eventual recovery.

Even before the recession began, many in the West were already primed for Armageddon. The terrorist attacks of 9/11 touched off a publishing bonanza for books about the decline of the American Empire. Climate change fears reached a fever pitch with warnings by the World Bank’s former chief economist that global warming would trigger a worldwide depression. Then fear turned to the prospect that the world would soon run out of oil, forcing us all to trade in our SUVs for a horse and buggy. From there, it was just a short hop to financial apocalypse. So it’s no surprise that an overwhelming sense of gloom has taken hold. Consumer confidence in the U.S. recently hit a 40-year low. Yet that, paradoxically, is exactly why some keen observers are starting to look for signs that things could soon perk up.

George Vasic, a strategist at UBS Investment Research in Toronto, believes a shift is underway in the minds of consumers that could indicate a recovery in stock markets, a crucial indicator of better times ahead. Stocks typically begin to rebound four to six months before the end of a recession. So far, with major indexes like the Dow Jones Industrial Average down more than 50 per cent from their 2007 peak, investors seem as bearish as ever. But Vasic argues that could be about to change. Every month the U.S. Conference Board asks consumers to assess both the current conditions in the economy and their future expectations. The difference between what consumers expect in the future and their current assessment is something Vasic calls the “expectations gap.” And during past recessions, going back to the 1970s, when the future has begun to look dramatically better than the present, a stock market rebound and economic recovery have invariably followed behind. “We’re at the point when consumers’ expectations about the future, even though they’re bleak, are better than the abject despair that is the assessment of the current situation,” he says. “The expectations gap has turned up, and the length of time it’s turned up is consistent with a bottom occurring in the stock market in the near term.”

It’s important to note that even if the market were to rally this month, that would still mean a recovery wouldn’t occur until the end of the year, or early next. But perhaps it’s no coincidence that several prominent bear market investors have recently turned bullish. Last week Steven Leuthold told investors not to put their money in his Grizzly Short Fund, which makes bets that stocks will fall in value. Last year the fund rose 74 per cent, but Leuthold has joined other perennial pessimists in suggesting the stock market is close to bottoming out. Despite all the pain caused by the market crash, there’s more than US$4 trillion sitting on the sidelines in money market funds waiting to be invested. You can think of all that cash as money building up behind a dam, ready to flood into the stock market as soon as there are signs of recovery. It’s that money that fuels a rebound in the capital markets, and there’s now more money built up behind that dam than ever before.

There are other signs, admittedly still faint, that the economy is on the mend. The U.S. Conference Board’s index of leading indicators, a basket of measurements that acts as an early warning system for where the economy is headed, surprised analysts by rising for two consecutive months in December and January. While consumer confidence levels and the unemployment rate attract most of the headlines, they are lagging indicators, meaning that those stats say more about where the economy was a month ago than where it will be six months hence. Unemployment can continue to rise for as long as 18 months after a recession has officially ended.

Some are also taking solace in America’s new-found frugality. After years of living beyond their means, the savings rate in the U.S. hit five per cent in January, the highest level since 1995. That’s a good sign the excesses that caused the financial crisis in the first place are stabilizing. “This whole thing was driven by consumers vastly overspending for a decade,” says Chris Thornberg, an economist with Los Angeles-based Beacon Economics who predicted the housing crisis. “When savings rates hit eight per cent or so, the primary driver of the economic turbulence will be over with. Then we’re in clean-up mode.” The fact that retail sales and consumer spending have at the same time inched up could help the economy recover while people repair their sorry finances.

While miserabilism has become the pervasive tendency, one long-time gauge of economic suffering has failed to keep pace. In the 1960s economists combined the rates of unemployment and inflation to arrive at the “misery index.” But while the misery index typically gets lots of attention when times turn bad, it’s largely ignored now. That’s because, with inflation at less than one per cent, the misery index sits just above eight per cent, a far cry from the 21.9 per cent it peaked at in 1980. Many expect inflation to rise as a result of all the liquidity central banks have pumped into the economy. But for now this traditional yardstick of misery suggests some of the gloom is overblown.

What remains to be seen is how successful all the various government stimulus programs will be. Later this month, for instance, the U.S. Treasury Department and the Federal Reserve will rev up a massive program intended to jump-start financing for automobiles, credit cards and small businesses. The program could inject up to US$1 trillion into the securitization market. “If you look around the world at the U.S., China, Canada, there’s a lot of action being taken,” says Paul Kasriel.

But for all the talk of leading indicators and stimulus programs, Kasriel’s optimism remains deeply rooted in the history of the Great Depression, of all places. Contrary to what most people believe, the 1930s were not one long, unending malaise. Instead there were two separate downturns, divided by four years of tremendous growth during which time the U.S. economy expanded by 9.4 per cent. That growth came despite a series of terrible policy decisions in the early part of the decade. The Smoot-Hawley Tariff Act threw up protectionist trade barriers and caused global trade to collapse. The Federal Reserve raised interest rates by two full percentage points in the course of one month. And Washington hiked the top marginal tax rate to 63 per cent from 25 per cent in a misguided race to avoid deficits. That the U.S. economy could overcome all of those hurdles and still grow suggests we can expect a repeat performance. “It’s remarkable the economy was able to recover in the spring of 1933,” says Kasriel. “When I look back at what was done to prevent a recovery, and I look at today’s environment, at what’s being done to promote a recovery, it gives me reason to be hopeful.”

Warren Buffett, the world’s most famous value investor, offered a similar message in a TV interview last week. While most focused on his observation that the economy had “fallen off a cliff,” he also said he believes in the American economy’s ability to right itself. “Everything will be all right,” he said. “We do have the greatest economic machine that man has ever created.”

Don’t get Kasriel wrong. He still sees serious problems in the economy. He also admits that he tends to be early in his forecasts. But flick on the TV today and the misery relayed by economists and pundits is out of step with reality. This isn’t the Great Depression. It’s a recession like so many others we’ve rebounded from. But chances are you won’t hear many experts espousing that point of view. At least, not until the recovery is well underway.

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The case for optimism

  1. No, there will be no hobos riding the rails, if for no other reason, in most places there are no rails. However if anyone thinks this is going to turn around in another fiscal quater or two, you are delusional or on more drugs than Hunter S. Thompson ever did on a good day. It was reported today that forclosed on homes in Windsor were selling for less than new cars. One eternal optomist saw the silver lining in all this saying it will stir new people to move in! Say hello to your new neighbour, box car willie! Of course if you bought a home there in the last few years and are stuck with a morgage twice what your house is now worth you may find your blessings mixed.

    I really wonder what people here are thinking. Does the fact that Hamilton, for the first time in over a century is no longer producing steel set off any alarm bells? Many of those workers just got there pink slips and are hardly out the gate. Most have not recieved there first EI cheque and are not on the statistical radar yet. What happens when the pogie runs out and the credit cards are maxed? I worked at a steel plant years ago. Trust me, turning off a blast furnace is not like turning off your oven. The brick linings fall in and it cost millions to restart them. Good luck with that.

    Not to fear however, at some point, some “expert” will declare the recession is “statistically” over and happy days are here again. However it will not seem like that for the millions of middle class people that were thown overboard while their decent paying jobs were shipped off to third world hell holes. Those jobs are never coming back. We are now looking at the result of the relentless attack on the middle class that has gone on for 20 years. In the new global world order the powers that be found the middle class(uppidy damn peasants, don’t they know their place!), tiresome and unecessary and jettisoned them at the first opportunity. Don’t worry, the experts have been saying all along there will be all kinds of new jobs in the “sevice industry”, i.e., making beds, flipping burgers and donning the Wal Mart greeters jacket. I guess jobs as strippers also could be called “service” jobs. I see applications for that “position” have skyrocketed with real desperate housewives trying to put food on the table and keep a roof over their family. Have a nice fricken day.

    • Yes yes, you hit that right on the head. People need to wake up. All our industry was sold to China during the previous 3 prime ministers. We had 300 companies over time close and move to Asia, thx for nothing.
      Good comment,thx

      • The United States of America need to close the Federal Reserve, which is not a Fed owned company, it may as well be Fed Ex, because it is privately owned and owns the printing rights to the US greenback.
        Wake up people, the bankrobbers and Bernie Madoff’s are killing North America middleclass.
        infowars.com or prisonplanet.tv
        We have our own troops patrolling our free streets in towns across Canada, but it’s just only practise, don’t worry, just go back to your tv’s. Lmfao.

  2. As long as puppets like Obama ,have new world order puppets I mean Secretary generals, working in his cabinet, taking orders from Henry, the murderer Kissinger, I don’t see much reason for any kind of optimism, sorry for the eye opener. Our economy is all over in China, we hardly manufacture a bloody thing in this country or the United States. Thanks to previous prime ministers going to China and selling all the industry they could get away with on us.
    Kill the Partners in Prosperity (SPP), between Mexico, United States and Canada.
    infowars.com prisonplanet.v for the amazing truth of who really runs the world economies and intelligence agencies all over the whole world. Get woken up. thx

  3. Yes and very soon, the BS artists will be incouraging you to invest your last dime in some neat new “financial vehicle”…ahh..let’s see, a really, really neat idea called a hedge fund. Don’t ask too many questions, just trust the magician with the magic box to produce “money for nothing”. And whatever you do, ignore the fact that the Emperor has no cloths. Oh and by the by, they are not called soup kitchens anymore, they’re called food banks and they are swamped. Cheers

  4. More predictions from the so called “experts”. Unfortunately they have not yet realised that the light buld at then end of the tunnel is burnt out. The tax payer and consumer will not spend the money to replace it.
    Time to light the candle. Lol

  5. Who knows people – if the price of oil and commodities repeat a very old and long tradition and as it has countless times in the past and spikes up in the next bit – next thing you know Page will reporting = well the upside figures were counterintutively lower due to the various machinations etc etc etc sheeps livers without as many spots resulting in – more revenue than originally projected for and anticipated (as this has happened countless times in the past) – deficits lower than originally forecast bla bla bla – bottom line things are getting better. – you never know .. and in point of fact if anyone makes any long term predictions right now I would head in the oppostie direction.

    • Just announced, IBM laying off 5000 people, CBC laying off 800 people. The future’s so bright I just gotta wear shades.(borrowed from the group, Timbuckthree) Cheers.

      • They won’t succeed until we have no more jobs in this country, that way we will be totally socialist and they will be totally fascist, wake up people they have taken over 300 companies during 3 prime ministers, and we are still losing jobs. That’s not funny.
        The Bilderberg Group, who Harper has participated in, at a CFR gathering, are hell bent on killing 80 percent of the global population, and enslaving further the rest of humanity. Wake up and turn off the tv’s.
        infowars.com or prisonplanet.tv

  6. The most disturbing thing here is the lack of comments or discussion about this column. Hard to figure out. Oh, more optomism just announced. Even fricken Google is laying off. Yikes.

    • What’s to say that has not been said 10,000 times already? Almost all companies will lay off people this year.

  7. Oddly one variable is very often ignored or unmentioned in the current state of global economics. Both political and personal manipulation of stocks and bonds to achieve personal, business or political goals. An environmentalist or pro-oil body with enough clout could seeming craft easily a legal way of driving prices up or down to suit their wishes. Seems a little far fetched but it’s no worse than when we allowed bad computer programs to crash the markets once upon a time because they didn’t recognize why buying and selling was taking place.
    If they really want to make he markets stable again we’ll go back to slow but in person buying and selling; no more fingertip trading on whims and news clips.

  8. One some detail as well as regards to lay-offs. We’ve become too efficient. Cars last too long, electronics and appliances don’t need repair and we have insulated our homes as much as we can afford. The problem? Well, If it ain’t broken it don’t fixed or even better for the economy… replaced. That’s right in order to maintain our manufacturing capacity we need to stop the green revolution and burn, bust and build like there’s no tomorrow again. It took a “consumers society”to create these jobs and by darn our current lot is letting them down. The plants that build SUV’s are slated for food banks people! Oh the humanity!

    Or we can do what we should be. Turn the page. Tighten up the laces of our work boots and lay the foundations of the next age. A greener one? More efficient? Perhaps with a little ingenuity we can leave the worn out ideas behind and fund tomorrows before the money really really is …ALL gone.

    • This is silly.

      There is nothing wrong with efficiency. If we could afford it we would all have private jet planes and rolex watches. I can assure you that I don’t have a 50 inch TV, or a washer/dryer, or the latest cell phone.

      The problem with SUVs is not that there is no market. If they lower the price enough I’ll buy one. The problem is that they cost more to produce than they do to sell if they lowered the price so that someone like me could afford one. So we need more efficiency not less, we need lower labour costs and more competitive car companies.

    • Clearly you have not read Economics 101. You do not make people wealthier by throwing things away.

      • Look at full warehouses and general over production. Your right it is silly; That was the point. However a big reason that manufactures suffer today is that simply supply has outgrown demand. Most of the sectors in trouble, don’t make essential products or make too many of them. Even food production is suffering over production even though our system promotes waste and destruction of food surplus rather than funnel it to food banks.
        As for the SUV comment,(head bangs on desk) who needs them? Big Screen? don’t need it either. Both are poison to energy bills and long term goals. Stop wasting money on building yesterdays toys and make us things that are more efficient?…. Just don’t expect that job to last as long as the product might.
        Name one industry that requires more bodies for production than it used to? Most don’t, that’s efficiency. Paying GM/ Chrysler to employ as many as yesterday while product demand is less and machines do more is…. SILLY.

      • Wrong, it made a few people very wealthy. It’s just the rest of us that have to clean up the mess. By the way in an ironic twist I just threw out another peice of Chinese junk to the landfill that broke down years before it should have. This item used to be made in Canada. It used to last for years. Chinese version lasted months. Go figure.

  9. Again, the problem is that we don’t make 50 in. TVs here(or any other size). Soon we will not build cars or anything else here as all decent paying jobs are shipped off to third world hell holes that employ child slave labour. For years the middle class has been under attack by greed heads who are not happy being millionaires and want to be billionaries. As the middle class shrank the number of billionaries in the world skyrocketed. What would Ronald Regan call this? The trickle up effect? Well it was a gusher for the few. Everyone else, not so much. For years now the middle class hung on by both spouces working, then working extra jobs, then the kids working. Then when there were no more possible hours to work it was off to remorgage the house, then max out the credit cards. Finally the whole house of cards caved in last years when, as it always does at some point, the powers that be got nervous and called in there markers. I wonder who the billionaires think they are going to sell things to anymore. Winos? The homeless? People who work at Wal Mart can’t afford to shop there. They shop at the Sally Ann and the food bank. I wonder if anyone has noticed how violent our society has become. Look at Halifax, Vancouver, for that matter most anywhere. Young people might not be able to articulate it but deep down the know the game is rigged and they are going nowhere, will never have a home or much of anything. Drug dealing, guns and violence seem like a reasonable alternative to some of them. What a shame, we used to have a beautiful country. Sad, really.

    • This is such baloney. If the world’s billionaires gave every cent of their money away equally to all, we’d each be $150 richer, enough for a tank of gas and some groceries.

      Give me a break.

      • And in fact, many of them, like Bill Gates, do give most of it away.

      • Well then, where did all the money go. What is your counter argument. That’s all you got? Just call any any point of view “baloney” that doesn’t argree with yours. I ask you, why is the middle class disappearing? Why has a country that used to be world known as a safe place become so violent, so quickly in virtualy every town and formerly safe neighbourhood. Wow, what a thoughtful response from you, just pass it off as baloney?

        • Just check some data. Crime rates have been dropping across this country for at least 10 years. Not increasing as some think. That’s because the media covers more of it and gang violence gets special, all be it deserved, attention. Violent crime is also more concentrated in poorer neighbourhoods. Your right though, crime rates do corrolate well with poverty.

          Where did all the money go? It vapourized because there wasn’t any real money in the first place. It is all was all potential money. Financial instruments, stocks bonds, funds etc soared from the late 90’s and hit great heights but their value was all theoretical. It’s not real money until you actually sell it for cash. The same is true for your house.

          The cash in you bank account is real money. None of it went anywhere. The cash in your bank account is still there. This was not true in the Depression. Banks, especially in the US, went bust and your cash was gone. Bank deposits weren’t government insured either.

          Also there was no EI, Medicare, CPP, Old Age Security, Welfare and other safety net services. There were no government bail outs either. Unemployment was at 25% not 8 or 10%.

          As for jobs being shipped to China. Canada and the world hit record low unemployment rates until recently. Forty million or more of third world people were lifted from poverty over the last 10 years because of China, India, Brasil and other emerging ecomonic growth. Yes some will fall back due to this recession but the direction was right and will start up again.

          I agree things will get worse before they get better and it won’t happen over a few quarters but were far from the Great Depression. We just think we are because we have had it so good for so long.

        • Barry has responded to you in a more specific sense, with respect to the current crises, and for most part I agree with what he has said, we’ve had it good for a while and the problems are not as bad as people are making it our to be,

          The part of your comments that was baloney was the part where you blamed everything on billionaires. That was ridiculous.

          They money has not “gone” anywhere. Our standard of living remains as high as ever. Compare life today to life 30 years ago.

          The middle class is not disappearing.

          And this is not a violent country. At all.

          I would say the biggest differences between Canada now and Canada way back when are:

          -government has grown and grown. Canadian life is highly taxed and highly regulated now. So we are all trying to maintain a heck of a lot more than ever before, paying into pension and welfare and EI and social services and the list goes on and on. The following shows tax freedom day, the stats are for the US but the Canadian figures would be similar (probably worse, I think tax freedom day in Canada is in June)
          Year TFD Percentage Tax Burden
          1900 January 22 5.90%
          1910 January 19 5.00%
          1920 February 13 12.00%
          1930 February 12 11.70%
          1940 March 7 17.90%
          1950 March 31 24.60%
          1960 April 11 27.70%
          1970 April 19 29.60%
          1980 April 21 30.40%
          1990 April 21 30.40%
          2000 May 3 33.60%
          2008 April 23 30.80%
          By FAR, the biggest expense for anyone in Canada is taxes. Yes, taxes. When a third of your earnings disappear before you see them, then it becomes rather difficult to save anything for the future.

          -Another big difference is that one third of our taxes goes into a big black hole called debt service.

          -People expect more. People expect to have cars and houses, and they are willing to pay ridiculous prices to get these things.

          -Another big difference is the use of technology today. People pay money for things that never existed before, like cell phones, dvd players and Ipods.

  10. Here’s Canada’s statistics (tax freedom day and tax burden) for 2008:

    Year TFD Percentage Tax Burden
    Canada 14 June 44.8%

    Try to imagine your finances if your tax burden was 25% instead of 45%. 25% is the tax burden that today’s retirees faced when they entered the work force and saved for houses and cars.

    • Fittingly, then, today’s retirees are the main beneficiaries (for now) of our high taxes.

    • When my tax burden was 25% – many many years ago – my government was paying for all that safety net by devaluing the currency and racking up debt. Can’t get something for nothing.

      • Actually, the currency was devalued in the 40s and 70s, and debt was racked up primarily in the 40s and from the 70s onwards.

        In the 40s it was because of the war effort.

        In the 50s and 60s, inflation was low, debt was low and taxes were low.

        From the 70s onwards,inflation was high, debt was high and taxes were high.

      • I do agree with your point though, devaluation is just as insidious as debt is just as insidious as excessive taxation. The end result is the same, everybody gets poorer.

  11. This economic mess was created by financial, industrial, and automotive management who will not survive since they will be replaced by new management who are keen to avoid their predecessors mistakes. This is the best indicator for optimism since any recession. In the past, Wallaceburg in Ontario was an industry leader in the tool and die market servicing the automotive industry. But, during the 90’s all of the automotive companies declared their supplier consolodation efforts, and since they were all so concerned about establishing manufacturing and markets in China, they told their suppliers that they would also need to have locations in China if they wanted to continue with their supply agreements in North America. Of course these small to medium sized tool and die shops in Wallaceburg couldn’t afford to set-up duplicate shops in China, so most lost their business contracts, closed shop, and now Wallaceburg is a ghost town. Shortly afterward, the largest GM dealership in Wallaceburg also went out of business. Then, the Ford dealership became history, and the Chrysler dealership is hanging on by a thread. China is no longer such a hopeful market for any industry. They buy cheap only, and GM, Ford or Chrysler are not interested in the Tata $2,000 car market. So, with new management, and their soon to be rush back to North American markets, most manufacturing sectors should see tremendous growth and creation of many manufacturing jobs very soon. The old boys are dead now.

  12. smatter? cant see the forest for the trees? read more and you begin the realize yep. this is happening. two choices…climb in a hole or be a person and look it in the eye…if ya made it this far…what ya gonna do …give up?…coward

  13. Be optimistic whatever happens. It's always good to think ahead and move forward.

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