Between the 1970s decadence of the Winnipeg airport and the insouciance of Westjet, an idle traveller with a newspaper is a dangerous thing.
I mean, look what I learned:
- Tourism in Manitoba’s in the crapper. Visits from Americans have plunged, hotel vacancy rates are up and business in poor Churchill is off 30%.
- The giant government fund standing behind US banks is empty. Goose eggs. Starkers. The Federal Deposit Insurance Corporation has burned through $60 billion and will remain in the red until at least 2012, despite a massive new levy on solvent banks. Evidently saving capitalism’s a bitch.
- Tons of grapes will rot on the vines in the Niagara Peninsula and the Okanagan this autumn as the Canadian wine industry deflates. Prices have crashed by 40% or so as consumers stop boozing, or turn to rotgut. In a classic case of supply and demand, supply loses.
- Expect the orgy of bank loans and cheap money to end soon, says the IMF. As the government stimulus tap starts to shut in North American and Europe, â€˜funding gapsâ€™ will materialize, which will stall the recovery and likely add to unemployment.
- And, of course, a new ruckus over whether the economy is getting plumper or limper in the wake of plunging numbers in Japan, news Canada stalled out again and predictions the US faces a lost decade.
Man, was it just a few weeks ago the recession, human despair and bad hair days were declared over in the wake of a single monthâ€™s uptick? As noted on this blog, economists from the big banks along with politicians fell over themselves lauding an historically short downturn and a return to our normal ways.
There is nothing normal about current times. Days ahead will be even less predictable.Â Weâ€™re in the throes of a battle between inflation and deflation, between those betting on economic breakout thanks to government trillions and others convinced weâ€™ve not paid yet for the sins of a generation of mindless borrowing and over-consumption.
In one scenario, higher energy prices, higher taxes and interest rates, higher equity markets, modest growth and a slow but jobless recovery. In the other, financially-stressed consumers unable or unwilling to pick up the tab as stimulus programs wind down. Economies sputter, demand falters, prices drop, unemployment rises, interest rates fester, government debt spirals, equities reverse, and weâ€™re back on the edge of the cliff.
Nobody can guarantee which scenario will dominate, although a desperate media, business elite and political cadre will continue to goad consumers into spending and borrowing, whatever the consequences. How could it be otherwise? The entire ruling class, yoked to the belief growth must be continuous and incessant, chose to deal with the events of a year ago with a mega-dose of Keynesian tonic. Instead of letting excesses correct, they gave us more excess (2% mortgages, home reno tax credit, cash for clunkers, CMHC enema, bailout billions, and endless TV ads).
Needless to say, deflation is far more destructive than inflation. You need to be aware of it, watch for it, and take steps to prepare.
Judging by some comments here in the last twenty-four hours, there are people disturbed I would write such things. And while I personally think higher rates, higher taxes and a sputtering economy are what likely lies ahead, a deflationary spiral into the unknown has been a possibility now for almost a year. Last winter I put the odds at 20%. Still do.
Donâ€™t know about you, but anything I judge has a 20% chance of happening to me, I do something about. Itâ€™s called insurance. Maybe you should get some, too.
Regardless of which road opens, there’s one inescapable conclusion: Real estate loses.
If inflation wins and rates rise, the market will correct. Has to. Affordability takes a big hit and an asset priced at the top of its cycle declines. Hundreds of thousands of people face the real potential of negative equity.
If deflation wins, and rates stagnate, the market will correct. Has to. Falling demand, consumer stress, rising unemployment and business failure dictate it. Hundreds of thousands of people in this scenario also face negative equity.
There is one consistent message on this blog. Whether you like it or not.
Having the bulk of your net worth in one asset is a very bad idea.
In the news: Deflation in the air