Economic Storm Clouds Brewing
It is only a matter of time before Greece defaults on its debts. Italy is on the brink of its own debt crisis. The United States has not recovered from the Great Recession of 2008 and appears to be heading for a second one. The projected economic growth rate for China is expected to decrease by as much as 2.5 percentage points next year, which would still give it very positive economic growth but which could be the pin that finally pops the extremely inflated real estate bubble in that country.
Any one of these events on their own could dump the world economy into the crapper. The fact that more than one of these events could happen within the next 6-12 months would be distasterous for the world economy, including Canada's. Although, we should be really worried about China. That is the country that is buying most of our natural resources, which is the sector of the economy that is keeping up Canada's economic growth. If China runs into a serious bout of economic trouble the economic recession that has been hammering Canada's industrial sector will come to its resources sector and the whole of the Canadian economy will go into a deep and probably prolonged recession.
What are we to do?
Do not count on central banks. Interest rates in the Western world are at or near zero so the central banks' ability to stimulate the economy by loweing interest rates is very limited.
That would leave only governments to take up the slack with fiscal measures to stimulate the economy. However, do not count on them. Any measures they take will probably just make things worse. Governments are completely unable to stop or reduce the duration of recessions. Unfortunately, most people do not realize that so they demand governments to act and when they do the situation invariably gets worse, which leads to demands for more action which leads increasingly desperate governments to take action, any action, that gives the appearance that they are dealing with the recession when in fact they are usually screwing things up more. At any rate, we should be watching what governments do after the next recession. They may not be able to stop or reduce the duration of a recession but they can make the recovery from one more even across their societies by what they do after the economy begins to bounce back.
Do not count on businesses either. They will demand that governments hand them billions of dollars to stay afloat "to save jobs" but they will retrench and lay people off by the 10s of thousands. As well, as they did in 2008 they will stay on the sidelines waiting for someone else to make the investments that will be necessary to finally pull the economy out of any recession.
So really, you can only count on yourself. Scary thought is it not?