If you plan to graduate in the next two years, don’t. Go to grad school, or take a fifth year. That was the message of last Wednesday’s panel discussion on the economic crisis. This recession will get worse before it gets better, and we may not recover until 2011.
Roughly 150 students braved the snowy weather to attend the Economic Students’ Association’s panel discussion about the next two years of gloom and recession. Financial Economics expert Professor John Maheu explained how the crisis started, while Professor Peter Dungan, a specialist in macroeconomics forecasting, predicted what’s in store. Professor James Pesando tied it all together.
Maheu started with a familiar tale of unregulated mortgage markets and securities. In the United States, you would go to the bank to acquire a mortgage. The bank would check your credit rating, and approve or disapprove your mortgage accordingly. The bank would then sell the mortgage to a mortgage broker, relinquishing all responsibility for the mortgage in the process. The broker would package many mortgages into a money-making security, selling slices of it on the market.
What went wrong with this process? For one, the primary mortgage lenders didn’t experience any consequences if the mortgage borrower defaulted. Since they had no reason to make sure individuals were capable of paying their mortgages, they focused on lending, the creation of mortgages being their source of income. As the housing bubble began to burst and home owners began defaulting, the junk stocks were exposed, and the US stock market experienced a serious crash.
Since the US is Canada’s largest importer, the fall of the US economy means the fall of the Canadian one as well. Canada’s economy normally experiences 2.9 per cent growth, but it’s now looking at negative growth of 0.4 per cent. Professor Dungan forecasted sharp rises in unemployment, as Pesando, following his lead, advised anyone graduating in the next two years to stay in school.
Facing a serious recession, economists have used what for the past 10 years has been considered the most powerful tool in their arsenal: monetary policy. But as interests rates lowered, the expected increase in spending did not come. Thus, as Professor Pesando explained, economists have arrived at an unusual consensus: they agree that fiscal policy is needed to pull the economy out of the recession.
Though the panel discussion was aimed at economics students in first and second year, it ought to have been advertised to the general public. The discussion provided a detailed explanation of how we got here and where we are going in terms of the economy, but didn’t go into depth. There were no serious numbers, no detailed explanations. In short, for anyone who had been closely following the economy over the past year, it was nothing they hadn’t heard before.
What can we take from the panel? Don’t try to enter the job market when unemployment is rising. Go to grad school. In short, same old, same old.
