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February 24, 2022

Are we headed for another Depression?

By Gordon Powers, Sympatico / MSN Finance

The Dow and S&P 500 tumbled to levels not seen in nearly 12 years, raising more fears that we’re sliding right off the deep end.

All this talk of an impending Great Depression is, well, a bit depressing. And, according to Yale professor Robert Shiller, it could easily end up as a bit of a self-fulfilling prophecy.

It’s not that there aren’t similarities, he says. The rupture of both stock and real estate markets, closely followed by the collapse of several financial institutions, does seem to have a lot in common with the 1930s. And, so far at least, the taxpayer dollars pledged by the US government to mop up bad mortgage debt and shaky balance sheets don’t seem to be having the desired effect.

Still, while the current recession could easily turn out to be the most relentless of the post-war period, it has a long way to go before it rivals the Depression in either length or severity, says Harvard’s Jeffrey Frankel at Seeking Alpha. So far, the downturn is at worst competing with the 1981-82 decline, he believes. And the Canadian experience is quite similar.

I think I prefer Mark Perry’s take on the whole mess though. Perry, a prof at the University of Minnesota, feels there’s little possibility that the economy will still be in recession by the middle of this year. His rationale? The New York Fed's model which uses the difference between 10-year and 3-month Treasury rates to calculate the probability of a recession, looking 12 months out.

Here’s hoping that model, which has accurately predicted the last seven recessions back to 1960, is on the money once again. 



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...