David Olive of the Toronto Star says that “we are not in a depression, nor bound for one. Not remotely”.


Brave words, especially the “Not remotely” part!

David Olive cites the fact that the Canadian market is close to year 2000 levels, and therefore hardly in dire straits, that the jobless rate is only currently 7.3% and way above depression levels, while citing record Canadian household debt (but discounts its significance and ignoring other important Canadian debt stats) and points out that Canada’s main export markets, the US and Europe, are in crisis. 

He also points to the fact that even the IMF’s downgraded growth forecasts for Canada leave it above its peers and that Flaherty is still positive about Canadian growth going forward.  Also, corporate profits are at record levels .  With respect to Europe he seems to believe that Europe will reinvent itself and come out with a stronger common currency zone, as if the only problem afflicting the Eurozone are reservations over commitment to it. 

He also goes on to say “Yet in these troubled times, we are dealing mostly with familiar problems, to which there are solutions that have reliably worked in the past….But since the crisis is more political than economic, better that we hold to account the powers that be and not go into rhetorical overdrive about the conditions themselves. “

Perhaps he is unaware of the vast increases in sovereign debt since 2007, or that economic recovery has been largely built on central bank intervention and unparalleled (in modern times) fiscal stimulus, which I might say cannot be repeated, and that most of the problems that precipitated the 2007 economic downturn remain in situ or have worsened.  Canada’s own recovery has been  built on demand for commodities and, more worryingly, a debt fuelled construction and renovation boom.  

Well, while we have not reached the levels of the 1930s depression, it does not mean that the extremes of the 1930s are the minimum requirements for an economy to be classified as being in a depression.  This is certainly no garden variety recession, nor similar to any major economy recession of the last 60 years.  Worse, it is global, complex and durable, and growth going forward is likely to remain under pressure until debt and structural economic imbalances have worked themselves out.

This is not at heart a political crisis: the political crisis is the inability of the political class to come to agreement over the best way to deal with the severe economic and financial issues that are placing significant stress on the economic and financial system.  Nor, are the problems we are dealing with familiar and almost all the solutions that have reliably worked in the past, and much more, have failed.

I can only think that the objective of the article is to serve as a devil’s advocate, to jolt those both for and against the depression moniker to both justify and battle for their positions.

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