Garth Turner’s predictions of economic doom and gloom
Newly un-elected MP Garth Turner has been ratcheting up the economic fear and panic on his website. Although he’s doing it to sell a book that he wrote, there is quite a bit of validity in his viewpoint. He also was sounding the warning bells on excessive concentration of real estate assets of average Canadians. His list of doom-and-gloom items, in order of decreasing probability is in his last post. I will treat these like future predictions, and add some colour to it:
Expect these things to happen
* Falling house values until at least 2010
If one is using the 1989-2004 Japan model, one could expect falling house values for the next 10 years, let alone two years. But falling house values until 2010 is a fairly safe prediction. I will only qualify this by saying falling real house prices (real being nominal price minus the effect of inflation).
* A large and growing federal budget deficit in Ottawa, starting in 2009
Easy prediction. “Large and growing” I will guess means about $25 billion in Fiscal 2009-2010.
* Unemployment rising almost continuously for at least two years
Another easy prediction, considering unemployment has been at record low rates. It should be pointed out that the number of people like myself in the workforce, however, is increasing – although Statistics Canada treats me as “not looking for work”, I do actually work in the form of contracts via my consulting company.
* The banking and financial system rocked with bad assets and a few failures
I think this has already happened. So not exactly a prediction.
* Stunning stock losses before a market-led recovery starts
Already happened. Volatility has been insanely high and I do not think the January to April RRSP season will bring much pleasure to much people – a lot will be getting income tax returns.
* Banks suspend dividend payments to stockholders
This is an interesting prediction. Canadian banks are trading at very high yields, and I do suspect they will reduce dividends, but not suspend them. Most Canadian banks need to raise more capital, and they have been doing this quietly. When they’re done with equity financing, that’s when they’ll likely cut dividends since their shares will get hammered when the decision is made. I would not assume the yields right now are what you’ll actually get in the future (Bank of Nova Scotia, for example, is 7.3%).
* Reduced exports and corporate failures as the US tries to protect jobs
A function of a recession.
* Fewer services as governments at all level struggle with a funding crisis
Maybe. Governments will rather go into deficit than to cut services, mainly for political reasons.
Don’t be surprised if these things happen
* Neighbourhood food shortages as just-in-time delivery systems are disrupted
Interesting prediction. Loblaw owns Superstore (and down east it’s Loblaws), and they are still profitable. Further down the supply chain, Maple Leaf Foods has recovered considerably since the Listeriosis scare. I don’t think this prediction will come to fruition, although I would think that the variety of foods available might shrink as suppliers get taken out and credit terms tighten.
* Electricity brownouts starting as early as the summer of 2009
Unlikely.
* A pension crisis as retirees find out about unfunded liabilities
Absolutely this is going to happen – another reason why the only defense that most people have with their financial futures is to take command of it themselves instead of depending on corporate or government defined pension plans.
* Real estate prices in Calgary, Edmonton, Fort Mac at 50% of 2006 levels
Wouldn’t surprise me.
* A wave of mortgage defaults. Yes, in Canada.
Perhaps. I think we would see higher unemployment rates before this happened in Canada.
* Scaling back of 2010 Olympics in Vancouver
Doubtful. I believe the province of BC would rather go into deficit to pull off the Olympics than to scale it down. In fact the Olympics just might be a “we know we are in the economic crapper, but we’re going to have a party anyway” type event.
* Bankruptcy of major Ontario homebuilders
Don’t know anything about Ontario, but construction in BC is sure to slow down unless if you’ve got connections to the government contracts that will be highway and bridge-building.
* Martial law in some US and European cities to quell protests of unemployed
We’ll see it first in Europe if this happens. I doubt it will in the US, however.
* Seasoned firewood climbing to $300 a face cord
I don’t know what unit of measure a “face cord” is, but I would suspect with natural gas and coal prices dropping that firewood prices would be in line with alternative measures of heating.
Hope these things don’t happen
* Failure of a major Canadian bank, leading to emergency merger
If one of the Canadian majors go down, the rest of them are likely in trouble as well and mergers isn’t going to help. There would probably be some sort of nationalization of banks, kind of like what the US government is doing to AIG to stop the panic.
* Canadian dollar falls with oil into 60-cent US range
This could happen if commodity prices continued going lower.
* Banks ordered temporarily shut and restrictions on cash withdrawals
Canada would be in real, real, real trouble if this happened. This is also why my assets are very mobile, mainly because I can get them into something else if necessary, where the “something else” would provide for purchasing power with respect to food and shelter. If things got to this point, little else would really matter.
* Auto industry collapses, despite bailout. Ontario grows rust belt
Hasn’t it already collapsed? The Japanese and Korean auto makers won the battle against the US manufacturers. Anything beyond this point is prolonging the pain.
* Ottawa suspends social benefits. Pensions, child benefits etc. only for needy
Would be a desperate measure.
* Most credit cards cancelled, balances become demand loans
This would be interesting, and I would think this would actually be a positive step if it happened.
* Widespread shortages of food, gasoline, home heating fuels
Would be very bad if this happened, but I don’t see it happening.
* Mass migration from urban, suburban areas, especially in GTA, as people flee crime and seek self-sufficiency
It would be more likely to see mass migration from rural and suburban to urban places in the event of a catastrophic scenario. The amount of knowledge that the average person has on farming practices (including myself) is so low that it would be almost impossible to live a self-sufficient lifestyle in a rural area even if you had ownership of a plot of fertile farmland. You would also have to solve your own fuel situation to operate farm machinery.
* Economic activity falls by 10%, unemployment hits 20%
This could actually happen, but it won’t be sudden, it would take a couple years. One just has to think what drives the current economy with respect to consumption – there is a lot of stuff out there that we could really do without, and the basics involve food and shelter – get rid of the rest of the stuff (including, regerttably, internet broadband) and you wipe out a lot of the economy.
Turner’s rhetoric is increasingly reminding me of Y2Kers. The only difference is that I understood computer software much better than macroeconomics, and so wasn’t that concerned when that happened.
Trying to separate legitimate concerns here from a run-of-the-mill appeal to primal eschatological impulses is more difficult for me to do. Being the most extreme-but-still-legitimate is a way to garner attention, and Turner seems to be trying to take that tack here. The fact that you are writing about him indicates some success.
People like this stuff because it’s dramatic. Most people live humdrum lives and so like to fantasize about these cataclysmic events that will occur in their lives – it’s exciting. That’s the major pull of news – although it completely distorts the state of the world, people like it because it accelerates their pulses. Talking about a new bridge that was just put up in Eastern Europe just doesn’t have the same pull as various catastrophes or disasters or “crises”.
It’s clear that the U.S. did the equivalent of boozing it up all night, without the means to pay the tab. The result is a lot of dish-washing.
I did point out that he is trying to drum up book sales for his economic end of the world book.
I like it because it’s dramatic as well, but I seriously doubt that we’ll be seeing food riots or anything like that since the supply chain is still pretty strong.
The US did the equivalent of boozing it up for 20 years without paying for the tab. Canada has been boozing for a shorter period of time, but we didn’t feel the effects of it because commodity prices were high and we were living off of that. No more.
I was talking with a girl who works in the import-export lumber sector, focusing on China. She says that people there are starting to redirect their production to internal targets. I think that we’ll see a year or two where large parts of the world redirect their production and trade. After that, demand for basic commodities will rise again.
Notice that, whether oil is rising or falling, it somehow means there’s a “crisis”? Whether the USD is rising or falling, it is somehow problematic? Whether China’s economy is doing well or poorly, it is trouble in some form?
Turner is high.
My counter prediction:
This will be the recession that no one remembers. Unless a major government is stupid enough to institute price controls, there will be no shortages of anything. It will turn out that our unprecedented levels of leisure time and disposable income will be a great buffer against real hardship.
Also, I’m tremendously irritated that Tony broke out the Y2K comparisons before I got around to it.
The nominal scenario is that because of the excess liquidity that was used to prop up the banks with their bad debts, it’ll eventually hit the rest of the economic system and then you’ll see a huge spike up in asset prices and inflation.
This is assuming that this liquidity will actually make it out.
My nominal scenario is that we’re going to be spending a few years treading economic water. The only difference, however, will be the composition of the workforce – the demographics and the retiring workforce are really going to put one hell of a tax burden on those people that actually do something in the economy.
The 1989 Japan scenario (USA’s equivalent is year 2000) seems to be the most applicable analogy to describe what’s going on now.
Tony, very good eye regarding the constant drumbeat of bad news, no matter which way we’re headed — I think what you’re seeing is very much “news-making” and I mean that pejoratively. Obviously Y2K was another such event for the media.
I’ll have to revisit this thread to see how everyone’s predictions shake out; I myself try to avoid prognosticating, but it’s fun to see other people’s track records. (Cringely has put out his yearly post-mortem of his predictions, where he did quite poorly.)
I love prognostications, and love making them. I realize I will be wrong often, but the thought experiment is the value in the prognostication – especially if the predictions are proven to be incorrect.
As long as I have a roof over my head and I see the shelves at the farm market full of food, obviously things are not as bad as they could be. This is why I say that liquidity is the cornerstone – even if prices are high, you can still get something. It’s when you stop seeing the price that things go to hell.
“the thought experiment is the value in the prognostication”
Right, you’re forced to make a more explicit “model” of how the world works, and you can then get feedback to rework that model … Often the lesson I get is that I shouldn’t be making predictions in that area (that is, there are lots of areas where it’s just really difficult to make accurate predictions in general …).
And often the model will be completely incorrect, but yield the correct conclusion, and will set one up for an even bigger fall the next time the same model is employed…