What’s in a word? Late last year as the credit crunch first started blooming, we started hearing that there was a good chance that the U.S. would fall into recession. As things have turned decidedly for the worse in the last few weeks, that talk has changed. Now, we have reporters – often ill-informed students of finance and history – saying that we could be on the brink of a depression.
And then this alarmist in the Globe and Mail this morning:
â€œUnfortunately, we have all the ingredients in the U.S. and Europe for the greatest financial catastrophe in 250 years,â€ warns Peter Gibson, vice-chairman of Desjardins Securities and his portfolio strategy and quantitative team.
Do we? That would mean we’re stumbling into something worse than the Napoleonic wars that destroyed the economies of every nation in the western world save England. That would mean we’d have a worse situation than the great deflationary spiral of the late 19th century. That would mean we’d have a bleaker outlook than the dustbowl of the 1930s with its painful unemployment too.
Language is a powerful thing and can be dangerous when in the hands of novices.
Let’s review. Our unemployment rate is rising, but is still low by any reasonable measure. Economic activity isn’t collapsing, though admittedly it could be artificially slowed by restricted credit. We also have a multitude of government backed programs that didn’t exist in the past, such as bank deposit guarantees and central banks. We also have trillions of dollars sitting on the sidelines waiting to jump back in.
Let’s not panic, shall we?