A possible explanation for the Weird Recession?

You have to be at least in your mid-thirties to have gone through the previous early ’90s recession as an adult. Those of us old enough to remember the bleakness of life between 1991 and 1993 are sometimes confounded by the fact that this recession seems kind of… weird.

Maybe it’s the fact that restaurants still seem to be doing good business, or that, in spite of economic shrinkage, it just doesn’t feel like we’re going through tough times, unlike the early ’90s when we really did feel it.

Two independent groups of researchers — at CIBC and the Certified General Accountants Association of Canada (CGA)  — might have found part of the reason.

The CGA has raised a red flag about consumer debt in Canada, noting that our use of credit for consumption rather than wealth-building has taken off, while our savings rate has plummeted. In particular, they blasted policies that promote “financing our consumption activity and… fuelling gross domestic product growth with unearned money.” (See page 67 of their report.)

Consumer indebtedness was also highlighted in a CIBC Economics report which notes that, as in previous recessions, personal bankruptcies have been rising.  But here’s where it gets weird:

Given the current fragile state of the Canadian economy and the likelihood that first-quarter GDP will be the steepest drop on record, one would expect the number of business bankruptcies in the economy to skyrocket. The reality, however, is surprisingly different. Not only are business bankruptcies not rising, but they are, in fact, falling. This trajectory is completely inconsistent with both the experience seen in any other recession and the current situation in the US, where business bankruptcies are rising at a rate not seen since 1975.

Could it be that instead of the broad-based suffering we saw in the early ’90s, we’re seeing a situation where the pain of the recession is being disproportionately borne by a smaller number of consumers who lived beyond their means thanks to easy credit and ‘paper wealth’, while those who stuck to financial orthodoxy are dismayed by the downturn in their RRSPs, but are still holding their own?

Or that the current recession, while sharp, is not being compounded by either the inflexibility of the gold standard (which was a contributing factor to the Great Depression) or the punitive 12-percent-plus interest rates of the years 1979-84 and 1988-91?

Just a couple of many possibilities why this recession  seems so weird.

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

3 Responses to A possible explanation for the Weird Recession?

  1. Fat Arse says:

    For me the recession in the early 80s was worse – first we had to eat my younger brother and then, horror of horrors, we had to smoke “rollies”!

  2. theviewfromseven says:

    LOL — I hope you’re kidding about your brother!

    I was very young during the ’80s recession, but remember the ’90s recession. This recession has been easy by comparison, so far. In 1992, the country’s unemployment rate peaked at just below 12 percent, and competition for even low-wage, low-skill jobs was intense.

    The early ’90s were lost years, economically and culturally. At least the early ’80s had some memorable movies.

  3. Fat Arse says:

    Re: movies

    So true. Who among us can forget 1980’s “Heavens Gate”! Somewhere still there is a formerly young vivacious lady (now in her mid-40’s) who still wonders why a certain A-hole took her to see that movie instead of the classic “Blood Beach”!!

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