Such as we still don’t have a comprehensive answer (other than Wall Street greed and predatory lending practices) what went wrong and why we are in the recession I decided to dive deep into the topic. The following several articles are the result of my extensive research and data mining.
My major conclusion is: mainstream economists and U.S. policymakers overlooked the substantial change in the consumer spending/saving pattern and failed to act properly. This change in regime started approximately in 1993 and is accounted for both dot-com bubble and the current depression (note, it is not a recession).
The results of this overlooking will be extremely severe: more than 10% drop in GDP and significant (up to 15%) unemployment. Economy will not rebound from this nose-dive. If we do not reinvent ourselves, after this depression the economy will grow not faster than by 2 percent annually.
The stimulus package is vitally necessary. It will not prevent economy from plunging to the new, lower level, but it may smooth transitioning from the current state to the new one (e.g. it will not allow the economy to plummet by 20% and than recover by 10%) .
All these figures are for the U.S. economy. Health of the Canadian economy is much more dimmed and will be mostly determined by the transitioning of U.S.economy. The only one thing is obvious - there will not be any recovery in the second half of 2009 as promised by Mr.Carney.
In the next articles I discuss why economic forecasting is important, what was particularly overlooked and why it was ignored. Finally, we will discuss the grueling consequences of this negligence.
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