Letter: Why mar­ket tur­bu­lence is not like 2008 down­turn

Canada's economy is in a good place compared to 2008

The recent market turbulence has understandably caused some investors to worry about a repeat of the 2008 financial crisis. However, there are several key reasons why the current situation is not as dire as it was back then.

Banks are better capitalized today

In 2008, many banks had taken on too much risk in the form of subprime mortgages. This led to a wave of foreclosures and a collapse in the housing market. Today, banks are much better capitalized and have stricter lending standards. This means they are in a better position to withstand a downturn in the economy.

Consumers are in a better financial position

In 2008, many consumers were carrying high levels of debt. This made them vulnerable to job losses and other economic shocks. Today, consumers are in a better financial position. They have lower levels of debt and more savings. This makes them less likely to default on their loans or sell their assets in a downturn.

The government is in a stronger position

In 2008, the government was slow to respond to the financial crisis. This led to a loss of confidence in the economy and a deeper recession. Today, the government is in a stronger position. It has a surplus and can afford to provide fiscal stimulus if necessary. This will help to cushion the blow of any economic downturn.

Of course, there is no guarantee that the economy will not experience a downturn. However, the current situation is not as dire as it was in 2008. Banks are better capitalized, consumers are in a better financial position, and the government is in a stronger position. This means that the economy is more resilient to shocks and that any downturn is likely to be less severe than the one we experienced in 2008.

Here are some specific examples of how the economy is in a better position today than it was in 2008:

• In 2008, the subprime mortgage market was a major source of risk for banks. Today, subprime lending is much less common and banks have stricter lending standards.
• In 2008, many consumers were carrying high levels of debt. Today, consumers have lower levels of debt and more savings.
• In 2008, the government was slow to respond to the financial crisis. Today, the government is in a stronger position and can afford to provide fiscal stimulus if necessary.

These factors suggest that the economy is more resilient to shocks today than it was in 2008. While a downturn is always possible, it is unlikely to be as severe as the one we experienced in 2008.