MUST READ!! Corcoran: Just how did the economy bounce back so quickly
Terence Corcoran: Just how did the economy bounce back so quickly?
Posted: August 31, 2009, 7:47 PM by Ron Nurwisah
Terence Corcoran, recession, stimulus
Terence Corcoran, Financial Post
So now, according to the latest interpretation of the latest numbers, the Canadian branch of the Great Recession is more or less officially over.
The recession ended in June, economists declared on Monday after looking at a Statistics Canada report that the economy grew at a thin 0.1% rate during the month. July, they said, will be a lot stronger as auto production increases and other economic activity — real estate, inventory accumulation — picks up. Look for a “big bounce” in July, said CIBC World Markets.
We’re all in favour of big bounces, just so long was we understand where they came from and where they’re going. The rapid turnaround in economic sentiment, in Canada and abroad, is taking place with amazing speed but without much in the way of explanation as to how we got from the brink of what was going to be a depressionary economic apocalypse to sitting pretty through a minor disturbance.
It turns out there was nothing “great” about this recession in Canada; it’s been just another downturn no worse than the 1991 slowdown.
Oh what a piece of cake it has been, and not just in Canada. In the United States, where the slowdown has been more severe, Ben Bernanke last week was appointed for another term at the Federal Reserve by President Obama on a wave of optimism that the U.S. recession is over.
“Ben,” said Mr. Obama, “approached a financial system on the verge of collapse with calm and wisdom, with bold actions and out-of-the-box thinking that has helped put the brakes on our economic free fall.”
Many other economies are gathering steam, especially in Asia. Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty have already awarded themselves victory badges for having saved Canada from crisis by deploying cheap money and big government spending to stimulate the economy.
And so now, poof, the global recession is becoming economic history — or so the numbers seem to say — and the only issue is the speed and breadth of the recovery. If this is true, that the worst is over and the only worry now is how soon strong growth rates can be re-established, then there may be something fatally wrong with the economic ideas governing the world’s policy makers.
A year ago, we were supposedly facing a global financial meltdown. Trillions of dollars in bad assets were turning sour, the product of irrational exuberance and just plain craziness on the part of the world’s bankers. A global Great Depression was said to be almost inevitable. If not, we would experience at least a Great Recession. Now all that is behind us, either a false alarm or a fire that was extinguished before it got out of hand.
Here’s the economic policy dilemma behind this sudden change in economic sentiment and our economic fortunes. If it is so easy to turn around a crashing economy, to the point that the impact of the crisis is not much greater than previous routine recessions, then why should we worry much about our future economic mistakes? From what we can see now, the great irrational exuberance of bankers and market players, home buyers and investors, politicians and regulators can easily be reversed and even neutralized by government.
In short, bailouts, massive government spending and wildly stimulative central bank actions — including free money hot of the presses — are effective neutralizers of market lunacy and regulatory distortions created by politicians. Bring on that new multi-billion-dollar industrial plan to subsidize new energy schemes. Why not regulate industry, control bankers, subsidize home buyers and car buyers?
If it doesn’t work, it’s no big deal. All mistakes can be fixed later, bailed out and bought up, repaired with out-of-the-box monetary and fiscal programs. That’s the mood right now in governments around the world, reinforced by the latest economic reports that imply the end of recession and a return to growth. It was so easy. In Canada, it has been almost painless, a routine recession. Even housing prices, which were slaughtered in 1991, have held up.
So what’s wrong with all this? Nothing, of course, if massive government deficits and unprecedented monetary expansions were value-free policies that have no other impacts beyond creating the short-term illusion of economic stability, even prosperity. Both monetary and fiscal expansions create long-term financial and economic instability, and provide a platform for even more adventuresome government activity in future.
The end of the recession, then, is just the beginning of the next phase in an economic policy environment in which, it seems, no matter what happens, governments can bail us out.
In a year or two from now, we shall see where these ideas take us.
National Post-->
Posted: August 31, 2009, 7:47 PM by Ron Nurwisah
Terence Corcoran, recession, stimulus
Terence Corcoran, Financial Post
So now, according to the latest interpretation of the latest numbers, the Canadian branch of the Great Recession is more or less officially over.
The recession ended in June, economists declared on Monday after looking at a Statistics Canada report that the economy grew at a thin 0.1% rate during the month. July, they said, will be a lot stronger as auto production increases and other economic activity — real estate, inventory accumulation — picks up. Look for a “big bounce” in July, said CIBC World Markets.
We’re all in favour of big bounces, just so long was we understand where they came from and where they’re going. The rapid turnaround in economic sentiment, in Canada and abroad, is taking place with amazing speed but without much in the way of explanation as to how we got from the brink of what was going to be a depressionary economic apocalypse to sitting pretty through a minor disturbance.
It turns out there was nothing “great” about this recession in Canada; it’s been just another downturn no worse than the 1991 slowdown.
Oh what a piece of cake it has been, and not just in Canada. In the United States, where the slowdown has been more severe, Ben Bernanke last week was appointed for another term at the Federal Reserve by President Obama on a wave of optimism that the U.S. recession is over.
“Ben,” said Mr. Obama, “approached a financial system on the verge of collapse with calm and wisdom, with bold actions and out-of-the-box thinking that has helped put the brakes on our economic free fall.”
Many other economies are gathering steam, especially in Asia. Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty have already awarded themselves victory badges for having saved Canada from crisis by deploying cheap money and big government spending to stimulate the economy.
And so now, poof, the global recession is becoming economic history — or so the numbers seem to say — and the only issue is the speed and breadth of the recovery. If this is true, that the worst is over and the only worry now is how soon strong growth rates can be re-established, then there may be something fatally wrong with the economic ideas governing the world’s policy makers.
A year ago, we were supposedly facing a global financial meltdown. Trillions of dollars in bad assets were turning sour, the product of irrational exuberance and just plain craziness on the part of the world’s bankers. A global Great Depression was said to be almost inevitable. If not, we would experience at least a Great Recession. Now all that is behind us, either a false alarm or a fire that was extinguished before it got out of hand.
Here’s the economic policy dilemma behind this sudden change in economic sentiment and our economic fortunes. If it is so easy to turn around a crashing economy, to the point that the impact of the crisis is not much greater than previous routine recessions, then why should we worry much about our future economic mistakes? From what we can see now, the great irrational exuberance of bankers and market players, home buyers and investors, politicians and regulators can easily be reversed and even neutralized by government.
In short, bailouts, massive government spending and wildly stimulative central bank actions — including free money hot of the presses — are effective neutralizers of market lunacy and regulatory distortions created by politicians. Bring on that new multi-billion-dollar industrial plan to subsidize new energy schemes. Why not regulate industry, control bankers, subsidize home buyers and car buyers?
If it doesn’t work, it’s no big deal. All mistakes can be fixed later, bailed out and bought up, repaired with out-of-the-box monetary and fiscal programs. That’s the mood right now in governments around the world, reinforced by the latest economic reports that imply the end of recession and a return to growth. It was so easy. In Canada, it has been almost painless, a routine recession. Even housing prices, which were slaughtered in 1991, have held up.
So what’s wrong with all this? Nothing, of course, if massive government deficits and unprecedented monetary expansions were value-free policies that have no other impacts beyond creating the short-term illusion of economic stability, even prosperity. Both monetary and fiscal expansions create long-term financial and economic instability, and provide a platform for even more adventuresome government activity in future.
The end of the recession, then, is just the beginning of the next phase in an economic policy environment in which, it seems, no matter what happens, governments can bail us out.
In a year or two from now, we shall see where these ideas take us.
National Post-->
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