Saturday, July 25, 2009

Anatomy of a recession...Deny, deny, deny...

So the recession that Jim Flaherty says "nobody saw coming" is already over...uh huh. Anyone believing today's news from Bank of Canada governor Mark Carney, probably believed forecasts of continued surpluses last fall.

In fairness to Mr. Carney, while CBC's headline announces: "Recession over, Bank of Canada says" the governor of Canada's central bank is actually on record as saying:

"We are on track for the recovery both in Canada and globally".

Being 'on track' and actually arriving at a recession free destination are two entirely different things. In financial circles this would be called a 'forward looking statement', something that should not be relied upon.

I don't recall a prediction from the Bank of Canada telling Canadians that our financial train was heading for a recession anytime last year, so I'll take Mark Carney's predictions with a big grain of salt. We'll need to see two consecutive quarters of economic growth for the recession to be officially declared dead, with the bank predicting that will occur late in 2009 and early into 2010...we'll see.

Recessions typically follow a fairly predictable pattern. You'll recall last fall, when concerns about a looming slow down in the economy first started making the rounds. Was there immediate acknowledgment from our political leadership that we were headed for a slow down? Nope...stage one is denial.

When the first signs of recession appear, government officials, (no matter the party in power) typically talk about the fundamental strength of the economy. They have to, to suggest otherwise is to signal to the electorate that 'hey...we messed up'.

Stage two is when recession is being reported as a near certainty. At this point government officials will finally admit that there is stress, but again we'll hear more about the fundamental strength of our economy (we're doing a good job, its not our fault). At this point newspapers start listening for the R word, anxious to hear an admission. The first utterance of the dreaded R word comes with predictions that if there is a recession, that it will be technical in nature only...that we'll have a 'soft landing' and that continued growth can be expected sooner rather than later.

Stage three is the final admission that yes....we're in a recession. But the culture of denial still pervades. There's no denying a recession's existence once the economic data (the last two quarter's economic activity growth vs. decline) has hit the street, now its all about predictions. And the predictions continue to be for a quick return to growth.

The last stage is capitulation, owning up to the reality that the economy is in the toilet. Now is when we finally hear about painful decisions being made, necessary to fight the recession beast. Higher taxes, cuts in services...that sort of thing. And this is actually good news, because it means we can finally expect to see growth again within the next six months or so.

We're nowhere near that point yet.

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