Co. There seem to be three major risks, Gibson said. A fall in the stock market or a run on mutual funds, for any reason, could feed on itself because neophyte investors, who have rushed into equities in droves the past few years, may panic. A stock market crash would trigger a recession, which would result in deflation and then depression. A sustained recovery in foundering commodity prices would have its own disastrous effects. Because real wages are already rising, a climb in commodities would instantly send inflation soaring, which would push bond yields higher and draw return-hungry investors out of equities.
Deflation is as dangerous.
If consumers postpone buying on the assumption that they can pick up the car, the computer, the house cheaper next year, they will create a depression because sales and corporate profits will fall, large companies will lay off and fewer consumers will be in the market to spend. Canada's comparatively high tax rate and low rate of personal income growth mean that it is actually more vulnerable to economic shocks than the United States. Certainly we are traversing treacherous waters. An increase in interest rates could be the catalyst. A rise in interest rates triggered a sell-off in the twenties.