Its official, Canada as strong as it has been, is following the USA into a recession. But how deep we fall, is oddly in the average persons hands. I am not suggesting that all we need to do is close our eyes, click our heels and recite, “There’s no place like home,” but history has a way of repeating itself if we do not take heed.
Over the past four weeks, Canadians have been watching as our federal government was being pecked away by the ‘Three Stooges’, citing a need to remove Harper and the Conservative for the sake of our economy. They actually believe that in their hands they can steer Canada away from economic crisis. It will be no surprise to any of us that when January 26th comes around and Parliaments sits again, the opposition will accuse Harper of causing our current crisis. But the sad reality is that many Canadians believe that governments can just turn the economy around. I just don’t believe that politicians wear blue and red tights with a cape.
The last economic recession that was felt world wide occurred in the early 1990’s. Canada had just come off a boom, which came to an erupted stop during the middle of 1988 and did not let up until the mid 1990’s. One factor was “Black Monday” when the American markets took the hardest fall since 1929. Although they recovered, lumbering savings and loans were beginning to collapse, putting the savings of millions of Americans in jeopardy. The panic that followed led to a sharp recession that hit hardest those countries most closely linked to the United States, which included Canada. This panic was widely publicized in the press and the result influenced a sharp drop in the consumer confidence index. The average Joe fearing their family’s financial stability socked their money away. The result was a hefty drop in consumer spending in Canada as well as Alberta.
Many will notice that it was during the 1990’s we saw the collapse of the family operated small business being the market norm. The loss of consumer confidence led to many small businesses laying off workers, the development of part-time employees as a standard which in turn saw full-time workers and benefit’s a thing of the past. Many businesses closed their doors or filed for bankruptcy protection. Larger retail corporations put the squeeze on dealerships and franchises in an effort to keep their margins and the collapsed cascaded. When the dust settled and the economy recovered, we saw the rise of the super big box retail shopping centres.
If we look further back to the Great Depression we see a similar economic pattern. The world had just come off of a period of great economic boom. In October of 1930, the American stock market experienced “Black Monday,” followed immediately by “Black Tuesday.” Falling share prices caused a collapse in confidence and consumer wealth. Spending fell and the decline in confidence precipitated a desire for savers to withdraw money from their banks. In short the average Joe began to sock away their savings, pulling money out of circulation. This affected the banks, in that many began to fail. In a desperate bid to raise money, the banks tried to call in their loans before people had time to repay them. As banks went bankrupt, it only increased the demand for other savers to withdraw money from banks. Consumer confidence, failing businesses, unemployment all occurred in that order. It would take over eight years for the economy to be stimulated.
Today, we are coming off an unprecedented economic boom that has been stimulated by the energy market, the rapid growth in housing starts, the continued expansion of the big box retails centres, a gluttony created by a diversified auto industry, and a continued low interest rate set by the Bank of Canada. North America has witnessed lending practices by banks and trust companies that have made the average Joe feel richer than they think. This in turn increased consumer confidence at a 50 year high.
The Consumer Confidence Index, which is monitored by many countries, is showing that as a result of the failing banks and heavy layoffs in the USA and now in Eastern Canada, the average Joe is again socking away their money. The consumer confidence index is showing that retail sales will hit, if not already an all-time low.
Meanwhile, Canadians sit and wait to see if Harper is going to make good on an “Economic Stimulus” package. Yes, many Canadians are watching to see if the government will re-emerge wearing blue and red tights and a wavy cape. But the key phrase here is “stimulus.”
The government can only do so much to stave off a cascade of financial failures. In the end, the lives of small business, retailers, local grocers, restaurateurs, service providers are in the hands of a handful of Joes. You and I, the very factor that the government will try to stimulate. Instead of watching an episode of the ‘Three Stooges,’ we should plan our spending. Invest smart, redirect our saving to support those businesses in our communities, the same businesses that employ our loved ones.
In the end, how deep we fall is in our hands.
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