Entertaining My Darker Thoughts

by Inya Ivkovic, MA

Before you read a word of this editorial, one caveat: I’m only entertaining my darker thoughts, but most certainly not enjoying them. What may such a task entail? A scary prospect that our future could very likely be much, much poorer and all those bailouts and investments in costly programs could make things much, much worse for a very long time.

There is an ongoing speculation among economists regarding what geometrical shape this global crisis has taken. The debate ranges from a V-shaped recession, which is marked by a sharp decline and an equally sharp recovery, to a U-shaped recession, marked by a sharp decline, followed by longer time before the recovery begins again.

Unfortunately, there is a third school of economic thought, albeit still a small one, which argues that what we are witnessing at the moment is an L-shaped recession, the stuff of which nightmares are made. For years, economies around the world grew, some at unprecedented rates, fuelled by consumerism and debt of gigantic proportions from personal to corporate to government levels. And now, as we hit the bottom, the globalization of our world could be the skin of its teeth away from collapsing, which, if and when it happens, would leave a wasteland behind where only deflation and depression would be left to roam.


Some economists are even talking about a lost decade, the kind of which Japan experienced during the 1990s, with episodes of slight seismic activity resembling recovery, but never quite managing to sustain momentum. If so, no wonder I cannot muster excitement about the recent stock market rallies and certain encouraging economic data. It could all be nothing more than one of the clichés used in financial jargon — a dead-cat bounce — barely masking what could be a decade-long decline marked by systemic global credit crisis and an era of trillions and trillions of dollars in the red on corporate and governments’ balance sheets worldwide.

The truly bearish among economists warn that a recession spawned by balance sheets deeply in the red territory is unlike any other recession. As demand plunges, even a corporation that did everything right and is among the healthiest could start fearing bankruptcy. To right its balance sheet, that corporation will plug all of its revenue into it. The same happens with consumers, who will plug in all available personal income into their debt. And that’s how everything spins out of control, resulting in surreally declining demand, revenues and investments, while bankruptcies and unemployment catapult into the stratosphere.

Japan knows all too well what it all feels like. But at least during Japan’s lost decade, some of the blows were cushioned by the growing demand generated elsewhere in the world, through export earnings. But with literally the entire world in recession today, there are no cushions available anymore for anyone.

It looks awfully like another Great Depression to some economists, regardless of the stock markets gaining quite a bit of ground in the last few trading sessions. But if it is truly so, it could also mean that all of the measures taken by governments around the world, particularly in the U.S. — all those billions of dollars pumped into the financial systems, all of those plans to buy and resell toxic assets off of banks’ books, all those billions intended for healthcare, education and energy reform, all of it — could literally only fuel the depression. Why? Simply, these measures only compound debt, they don’t eliminate it. And no economy burdened with so much debt could ever recover, let alone grow again.

What are economists wrapped in their darkest thoughts suggesting as a solution? They are advocating the temporary nationalization of the financial sector, leaving the weak to fall and the strong to fend for themselves. That is the only way they perceive as possible to cleanse the global financial systems of excess debt, generating other positive by-products in the process, such as lower costs of living and the creation of the stronger starting point for future growth. They say depression is a harrowing experience, but not the end of the world. Far too many disagree.

Who is right? President Obama said last week in his televised address that his economic stimulus is working and that he was optimistic that recovery is just around the corner, perhaps as soon as the end of this year or early next year. He doesn’t want to get his hands dirty with nationalization and believes now is the time to help his nation with better healthcare, better education and better energy. He believes this is what America needs to grow strong again.

There are two old sayings that make us doubting Thomases: “The road to hell is paved with good intentions” and “He was often wrong, but never in doubt,” which is what makes it impossible to at least provide you with an educated answer. I’d say that praying, right about now that President Obama ends up being right is perhaps the only thing left to do, even as I entertain some of my darkest thoughts.