Waiting for the Apocalypse with Garth

Professional Casandra and Canadian financial blogger has another post predicting the apocalypse. Like most of his posts, it warns of a coming real estate meltdown and a collapse of the financial system. Only partly tongue in cheek he describes this call from a friend last fall, at the height of the crisis

Seven months ago one of my buddies called and told me what his plan was.

“We can get to the cottage in six hours, and I’ve got 500 gallons of diesel laid in for the generator, plus there’s a woodlot for the stove,” he said. “And it’s remote, in Quebec, so marauders shouldn’t be an issue. I’m just not sure about how to lay in enough food in case we have to stay there through the winter. And cash, how much…?”

Just last November we were all screwed, or so it seemed, on the cusp of a neo-1930s collapse. Financial system collapse, corporate collapse, supply chain collapse, even government collapse suddenly looked more than plausible. In the matter of a few days many people realized they were completely unprepared (unlike my friend) for anything other than life as normal.

Here is a further sample of the Turner ouvre

Houses are selling again. Prices are rising amid bidding wars. “Only” 42,000 people lost their jobs last month in Canada last month, and, hey, GM will be outta bankruptcy before you know it. Care for a Buick?

Of course, it’s in the naked self-interest of all those people to encourage ingénue first-timers to dive into the mortgage soup and run up their LOCs buying new HD televisions and cars with cameras in the back bumpers. It’s only consumer spending – massive new amounts of is, supported by billions in new debt – which will rescue this economy. Maybe.

The trouble is, all this gardening talk has convinced many Canadians we are on the cusp of 2006, when we’re actually much closer to where we were this time a year ago. As I have been saying for some time now, this is not the end of the crapstorm. The great recession will not end in a V – rapid decline and quick recovery – but probably be a W, with a second plunge coming which will be just as unnerving as the first.

So I shake my head when some folks scoff that my prediction of a 15% national real estate price decline has not yet materialized or my comment that we would see a “faux” spring real estate market in 2009. Fact is, the current bubble would not exist if desperate governments had not cut the price of money to near zero.

Turner seems shocked that governments use monetary measures (0% interest rates) in a severe downturn. And a 15% correction in real estate prices is something we've seen (and survived) before. Price stability and increase sales in response to low interest rates is a good thing; it is evidence that monetary policy works.

Yes, our financial institutions have not been very forthcoming about their balance sheets. They continue to hide behind accounting rule changes and off-the-books government bailout programs. And yes, this, along with growing unemployment and the implosion of Ontario's manufacturing sector may well lead to a "double dip" recession. And yes, in refusing to address underlying conditions, we are certainly laying the groundwork for the next crisis.

But the recession will end. As in the early 80s, many people will be badly hurt, and, tragically, some will never recover. But I for one have no plans to lay in supplies at our remote cottage while awaiting the end of the world.