World Economic

Remember when Nortel Networks Corp. was worth many times General Motors Corp.’s worth? It was a passing fad that came to be known as the tech bubble.

This week, the word getting a lot of play on business news networks and the blogs of gold bugs was depression. Or should that be Depression?

No less than a Harvard-trained economics professor and international crisis consultant, Nouriel Roubini, delared on his website: "One cannot rule out a systematic collapse and a global depression."

And, as if to confirm everyone’s worst fears, GM fell to less than two-thirds the value of Tim Hortons. Dollars to doughnuts you never would have expected that.

Even with our heavily depreciated dollars – down nearly 12 cents (U.S.) since Sept. 26 as nervous investors flocked to the discredited greenback – a Canadian billionaire could have bought GM for $3.4 billion after Standard & Poor’s Corp. warned America’s leading car makers are in danger of running out of cash.

That optimistic billionaire would have needed a lot more cash or a secure line of credit to keep GM running, because investors were demanding a 39 per cent interest to hold GM’s long-term bonds.

On the other hand, one of our dwindling clutch of billionaires could have rolled up the rim and won Tim’s, Canada’s iconic doughnut and coffee chain, for a mere $5 billion.

Presumably the higher price is justifiable because, in a 1930’s-style depression, Tim’s franchisees will add horse feed to their drive-through lanes. GM car owners, unable to afford gas, would convert their SUVs into Harper or Dion-Layton buggies and, south of the border, Obama or McCain wagons.

Please forgive the dark humour, especially my three family members who draw GM pensions. But I’ve lived through fear mongering about a depression, and the bankruptcy of GM, before.

I once went so far as to ask the president of GM of Canada, after he recited a long list of plans for new models and factory renovations: "With whose money?"

The crisis I feared back in the early 1980s was forestalled for a quarter of a century, thanks to a lot of other people’s money and an abiding faith it would be repaid.

These days, faith in the ingenuity of mankind is in dangerously short supply. Banks don’t trust banks, or lesser businesses. Germans don’t trust Italians and Spaniards to hold up their end of the European Union bargain. We can only hope this will be a passing phase, and that agreements reached in Washington this weekend will be sufficient to lift the world’s markets longer than an hour or two.

Roubini says it’s time to go big, or go home and count your gold coins. He is calling for a co-ordinated 1.5 percentage point cut in central bank lending rates, countries taking stakes in more banks as was announced late yesterday, funding for private corporations and insolvent householders, tax rebates for low-income earners and massive spending on unemployment insurance and public works.

"A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway," he warns. "Severe damage is done."

The lynchpin of his plan would be an agreement that money certain countries borrowed on their way to an artificial housing boom would be cycled back from the countries that profited from the excess spending and avarice.

In other words: Buddy, can you spare a dime for coffee.

James Daw, CFP, appears Tuesday, Thursday and Saturday. He can be reached at jdaw@thestar.ca.

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