The Recession is NOT Over

The Bank of Canada says the recession is over. Five reasons it isn’t.

The Bank of Canada may be technically correct in that the economy has stopped shrinking for two quarters. But an accurate, albeit very narrow, technical description hardly means a recession is “over,” growth is back, and happy days are here again. Here’s why I think so:

1. Economic shrinkage of more than 5% per quarter stopped because governments, including our own in BC, threw money at the largest companies to keep them afloat when they got caught up in the banking crisis. But that doesn’t mean other factors have stopped. So while, the technical “recession” may have ended, the recovery won’t begin for a long time. In fact, many are expecting a double dip — a falling back into recession. In the 30s, recessions came regularly, and the 70s were one long stagnant period.

2. Governments, frightened of losing votes, “resolved” the crisis through subsidization. But subsidizing bad business practices is not a long term solution, and we’re all going to have to pay for it the long run through continued joblessness, tightened spending regimes, and currency fluctuations. If there is a recovery in the works, it sure won’t feel like one.

3. Taxes are going to rise, leading to a continued hobbling of any recovery. Someone has to pay for the billions in subsidies that are propping up industries that were in their sunset periods and so will always require some form of government support. That someone will be you.

4. Do you really think businesses that were mightily wounded by the savagery of this recession, will forget it so easily? Despite the Bank of Canada’s (and supposedly, the federal government as well) whistling of a happy tune, the dirge continues in the minds of Canadian business. They’re not about to open up their wallets soon.

5. Most of the all important consumer buying that is supposedly leading us out of the recession is a cannibalizing of future spending. It’s said that some 80 per cent of recent car sales were simply purchases that would have been made in future anyway but were made now because of incentives like 0% loan rates. Most real estate purchases were investors taking advantage of lower prices and higher currency values offshore.

Those are my reasons why I believe the recession isn’t over. How about you? Do you think it is, or are we in for a long grind?