"Take the road to financial freedom....even in this recession!"
SStudy past mistakes to avoid future errors.
There has been much publicity recently and all talk in the groups about the recession being over. Is this
true? How do we know? Can we depend on the statements of the gurus? Since a recession is
formally a decline in a country's gross domestic product (GDP), or negative real economic growth, for two
or more successive quarters of a year, and surely we had that, then we did clearly suffer a recession.
There's no doubt about that. But what about escape from recession? Are we there? Well, first you
must study the definition of the economic cycle. The cycle goes something like this:
THE ECONOMIC CYCLE
Strong Economy = Employment + Expenditures ➔ Leads to High Demand of Goods & Tripping Up in
Excess Demand = Rise in Prices (Inflation) ➔ Salaries Increase = Employment Costs = Rise in
Costs of Goods
Costs of Goods Reach Excess = Consumer Retreat ➔ Demand Decreases = Employment Decreases
Economy Shocked = Price Decreases to Spur Demand ➔ Demand Rises = Greater Supply
= GOOD TIMES
THE LOOP IS COMPLETED BUT STARTS AGAIN
THE RECESSION IS OVER (well at least, according to The Bank of Canada) from Sept/09
The Bank of Canada has declared that the recession is over! They have projected our economy will bounce back twice as
strongly as the US economy has done! The Canadian projection for next year is at 3%, while the American comes in at only
1.4%!) And I didn't know the US economy had already bounced back! I guess somebody should tell those poor folks languishing
out in Tent City, USA.) At any rate, they must be smarter than I am, so I assume the recession is over. Now, should we heed this
advice or not? I don't really know. I am a strong advocate of both listening to others and tossing their judgements aside (!), so
when I hear something like this, I like to absorb all the information first, then make an informed decision on my own - which
doesn't always equate to the 'expert's opinion'. Let's see what's being noted so far by The Bank of Canada about the recession
that stole about 500 000 Canadian jobs:
They estimate the economy will advance by 1.3% by September. They further estimate that the fourth quarter (last part of the year)
will show a 3% gain, as compared to a US gain of only 1.4% and a European gain of only .7%) But then again, last April, they
estimated the recession would last past the fourth quarter and dip a bit further in the first part of the first quarter of 2010.
They also estimated, under the direct guise of Bank of Canada governor Carney that we would come out of the recession
gradually (who'd of thunk it????) The interpretation of global changes was also positive, attributed mainly to fiscal responsibility
of government's and stimulus packages to various sectors of the economy.... (well, I'll be.... we could all do well if we were offered
gazillions of dollars after we failed at succeeding in business, eh?) International recovery is 'nascent' - which equals just coming
alive (had to look it up myself, just to verify - lol!) - and that the continuation of positive growth was dependent upon policy
implementation. (I assume this means if the governments keep legislating stimulus packages, etc. - wouldn't we all continue to
do well if we had continued support?) And guardedly, the economy will not really stand on its own until at least 2011.
Of course, after this statement of positive happy thoughts about our economic future, there was an immediate effect on the
Canadian dollar, which is now at about 92 cents US. (This is great for those of us buying property in Florida shortly! Thank you
Carney!) But, its adjacent decision to keep short term interest rates unchanged will surely help to continue to motivate a slightly
Conversely, although the American economy has stopped sliding, it is still not moving forward, and the European nations and
Japan are still supposed to be in deep recessionay mode. Yet the Chinese markets are expected to gain over 8% during the
same period, with projections gaining speed! (Some body should study why....)
Are we lucky that we seem to be coming out ahead of the Americans and the Europeans, in small struggling steps now, but what
seems projected to be a huge advance? Well, maybe. But maybe, our conservative nature has keep us somewhat insulated
from the financial disasters occuring in Britain and the US. Could it be that this is a lesson for all of us about the excesses of the
past? Could it be that our banking system's refusal to rush to the sub-prime market, seemingly flagrantly disregarding common
sense, has been our ultimate financial net? Perhaps. Likely.
The formal reasoning for the bounce back is a stabilization of commodity prices and a stable underlying economy. (What exactly
does this mean? That prices for commodities such as iron ore, crude oil, coal, ethanol, salt, sugar, coffee (my personal fave),
soybeans, aluminium, rice, wheat, gold and silve have started a vertical climb and that we weren't really all that off the wall to begin
with! No zero down cashback 100 year amortization mortgages here! No siree! And - no sub-prime mortgages with disastrous
ballooning interest charges that were sure to cause financial trauma on the system.
I guess it helped that they artificially suppressed increases in mortgage interest and are continuing to do so, to puff up the
economy. So that's all good.
If we are to study history to see what might happen, then we might project that the economy will bounce back significantly stonger
than the forecasts, as it has done in past recessions, although there are apparently some questions about our negative operating
But, all told, we're heading upwards according to the Bank of Canada! We're in for the ride.