All of the important political pundits, government officials, the mass media and the business press have declared that the Great Recession is over and we are now entering the recovery. Green shoots are seen everywhere. The stock market has led the way with a recovery of around 48% since hitting bottom. The $12 trillion of taxpayers' money thrown into the markets by government fiscal stimulus programs has been a success.
     Canada has fared very well compared to the other industrialized economies. Indeed, while U.S. house prices have fallen and homeowners have lost over $4 trillion in equity, house prices in most of Canada have remained high, near the peak of the bubble. The largest increases over the past year have been in Saskatchewan. With record low mortgage interest rates, and no money down mortgages again guaranteed by the Canadian Mortgage and Housing Corporation [The Taxpayers], first time buyers are plunging into the market.
     It is only the economists and political economists outside the mainstream who are still not convinced that we are in a recovery. Many believe we are in a long term bear market and the future will more likely be a period of stagnation if not deflation and/or depression.

     Canada, of course, is deeply integrated into the U.S. economy. What happens in the United States inevitably has a major impact on the Canadian economy. Despite all the optimism we hear and read in the mainstream media, outsiders like myself are still very skeptical.

Recent economic indicators
     It is important to remember that the betting on the stock markets has little to do with the real or productive economy. Consumer spending now accounts for almost 70% of U.S. gross domestic product. Thus we should pay attention to the fact that U.S. consumer confidence is still dropping, household income is declining as hours of work and pay decline, retail sales are still stagnant, unemployment is still rising, and U.S. house prices are still falling. U.S. (and Canadian) household debt remains very high at around 125% of disposable income. It was 36% in the good old days of the early 1950s, and that was before married women flooded into the labour force.
     In the United States (and Canada) government revenues are falling. Federal, state and municipal governments face large deficits and the need to borrow money and raise taxes. U.S. state and municipal governments are radically cutting jobs. Interest rates will have to increase as governments around the world seek to borrow money to keep providing their services.

Is this a bear market rally?
     We are heading into September and October, traditionally the worst months for the stock markets. A collapse on Wall Street would quickly convince consumers that we are not on the road to recovery. The result would be increased savings and less spending.
     One of Canada's best known economists is David Rosenberg, former chief economist at Bank of America/Merril Lynch. He points out that the current rally in the New York stock markets parallels the bear market rally that began on November 12, 1929 and rose 47% over the next five months. Of course, the markets then began a long downward trend, characterized by a number of other short term bear market rallies. Could we be seeing a repeat? Many Japanese economists, looking at their own history, believe so.
     If you are interested in looking at this in more detail, I would recommend: Barry Eichengreen and Kevin H. O'Rourke,  "A Tale of Two Depressions," published on VOX on June 4, 2009.  http://www.voxeu.org

John W. Warnock is a Regina dissident political economist.

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