Without further ado here is the rant:
WARNING: This is a rant. I’ve wanted to rant on this subject for a while, but this may be too technical for many readers. That said, it’s like medicine, it tastes bad, but it’s good for you.
If there are silver linings to the crash & crunch of 2008/9, it will be an increase in the financial literacy of the average person, which is a much needed catalyst going forward for any new life in financial markets. One place to start though is Wikipedia. Thanks to the magic of wikinomics and Web 2.0, wikipedia has an impressively concise overview of the entire crisis that is updated accordingly as it unfolds. Knowledge in today’s world is like compounding interest, it’s awesome.
How Bad Is It?
Depression 2.0? Who knows. There is really only one way to answer this question honestly. No one is really sure. The last economic minds that faced something of this magnitude were all dead by the 1970s. There may be a few Japanese who have opinions regarding their own lost decade, but the scope of this crisis is truly massive.
Without getting into the jargon of the derivatives there were the real culprits, the consensus over the root causes for the economic crisis were too much debt, a culture of short-term rewards for long-term risk and fatally flawed mathematical risk models. Or, in other words, just plain greed.
“A Crisis of Capitalism” is what it’s being called. And while I find that phase a bit sensationalist, corporate and political leaders gathered at the World Economic Forum in Davos last month didn’t balk as saying things like:
“If you believe that the world economy will turn the corner at the end of this year, or in [the first quarter] of 2010, I tell you we have not turned the corner, we can’t see the corner, we don’t even know where the corner is.”
“we don’t know what to do, only that we need to do something and we need to do it fast”.
It’s nice to know that the people in charge have such a great handle on the situation, doesn’t it?
But back to the point. How bad is it going to get for us in Vancouver?
Well, given the fact that we’re going to surpass the total job loss number that were predicted for all 2009 by the end of February, all indicators point to the fact that it will be significantly serious. The sudden rise in violent crime, though fueled by drugs and upheld by gangs, has been catalyzed by the bottom falling out of the condo boom. While we will likely fare better in terms of labour in BC due to our resource base, the housing market and all related industries this side of the Rockies will continue to deflate and will take substantially longer to recover than many are hoping for. 2000 levels would even be somewhat optimistic. There is just too little deployable capital, too tight a grip on credit, and way too much inventory to still eat through. Sorry, but numbers don’t lie.
Stay tuned for part 2 tomorrow: So What’s Been The Response?…