Only a few short weeks ago, some were wringing their hands over the imminent peril of the perils of inflation. This was despite the obvious signs of a looming market "correction".
How long before they notice the scope of the problem and the current deflationary pressures?
Meanwhile the state-approved economist had another go at prognosticating in the Telegram on Saturday. Sadly, the story isn't on line. [Afternoon update: Courtesy of The Western Star.]
On top of his prediction last month that the the provincial government surplus will be as large or larger this year and originally forecast (and that prediction after the global meltdown started mind you) he is now saying that the economy will recover from the current crisis.
Well, of course it will. A penetrating insight into the obvious is that.
Outside of a few anarchists, everyone knows it will. Even in the 1930s after the Great Depression, the economy rebounded, eventually.
The question is not whether it will turn around but what will it look like when it does recover.
Pretty much like it did before - think 2006 with oil running at 80 or 90 bucks a barrel - apparently, since all the "fundamentals" that led to high oil prices are still there we are told in the Telegram story.
Really?
Well, at least, according to the state's favourite economist.
Like the ridiculous credit situation in the United States that fueled demand to heights never seen before.
Yep.
That will exist after the current mess is over.
After all, it is one of the fundamental causes of the demand spiral.
Now one of the things to bear in mind through all this is that in 2004 or 2005 you wouldn't have found an economist on the planet seriously suggesting oil at US$90 a barrel let alone US$150. Those predictions didn't emerge until oil hit close to 150 and even then Goldman was thought a bit loopy to be tossing around 200 bucks by the end of 2008. These days not too many are willing to buy into the current Goldman idea of oil being over $100 again next year.
That's because economic forecasts have a distressing tendency to rethink the future in terms of the here and now. As oil prices climbed above first 40 and then 50 and then 70 dollars, you started to see more and more revised forecasts for oil staying that those prices into the future. A few months or years earlier and none of them seriously projected 50 let alone the heights it reached.
Apparently, it is taking some people a while to realise the scope of the current problem. It isn't limited to the financial services sector and the automobile sector in North America, as if it was merely a couple of companies. There is a broadly-based - fundamental - problem and as such it will have an impact both in time and across all sectors of the economy. [Aside: some analysts provide a refreshingly sober view of things, as in this video from CBC Here and Now.]
You'd be silly to think we don't have a problem right now, but you'd be equally silly to think that a correction of this magnitude isn't going to alter some of the conditions that existed beforehand and which led to the current mess. Fundamentally altering the fundamentals will likely produces a very different situation, and that likely doesn't mean one that will see oil shooting up to US$100 a barrel any time soon. To be sure, let's make it plain that it isn't likely to occur again for a couple decades, much like the last time this sort of pattern - high climb and then sudden price collapse - emerged.
Some companies will continue expansion plans. This will especially apply to companies that are well managed or that secured their funding for expansion before the string of bank crashes. Think IOCC in western Labrador.
That's proof of a well managed company, not any sign that the company believes in historically high prices for iron ore on into the future. Rather the company management likely knows that by lowering costs whenever it can, the company is more likely to thrive even in lean times. That's how oil companies do it.
Smart business managers don't budget on the basis of historically - and in some instances absurdly - high prices continuing forever just because they happened a couple of times.
Governments shouldn't do it either.
-srbp-