Is it different this time?
Comparisons to the 1930s abound – but are they apt?
There is a lot of information swirl out there, and it’s tough to make sense of it all. At current price and volatility levels, there appear to be both similarities and differences to previous slowdowns.
When you look at the current situation and what has transpired over the past year with a period like the 1930s, though the decline in the stock markets has been precipitous, other indicators are not aligned.
The economic vulnerability during the 20s and 30s was significant. Bank and deposit failures were prevalent, housing prices declined 30%, mortgage delinquencies represented one-third of mortgages, consumer credit was off by 50%, money supply down almost 30%, and consumer prices were downby 18%.
Things were made worse by an absence of policy response by government, which was followed by serious errors in fiscal, monetary and trade policy. All this occurred against a backdrop of very high interest rates which in turn put pressure on profitability, investment and jobs. In fact, the unemployment rate during those years has been estimated at 25% and the economy retrenched by over 40%.
By comparison, current growth forecasts, while slowing, suggest Canada is still on solid footing, though we have been somewhat impacted by the effects of the financial excesses that have led to the recession in the U.S.
And although in Canada many of these same sectors and markets have experienced declines, it is not anywhere near the magnitude of what was experienced early in the 20th century.
Jeff Hall, B.Comm., CA, CFA
Vice-President, Head of Fixed Income Investments and Portfolio Manager
Jeff manages a number of our flagship fixed income products and has been with Investors Group for 15 years.
"Every crisis sows within it the seeds for its own recovery and the potential for tremendous opportunity."
