The only way is up after credit binge
There were few people at a recent Institute of Directors event at Derry's City Hotel who did not feel the dead hand of old history pressing heavily on their shoulder.
During a lunch organised by Londonderry Chamber of Commerce, Robbie Kelleher, one of Ireland's top economists, warned that the western world faced a "once in a century situation", and that it may take years to escape the effects of a serious downturn.
Mr Kelleher is head of global investment strategy at Davy — a leading provider of stockbroking, wealth management and financial advisory services — which has since continued to paint a gloomy picture of what lies ahead.
But those who listened to Mr Kelleher have watched the unfolding events of the past three weeks with grim fascination, almost as if armed with foreknowledge.
While many economists were predicting serious problems, Mr Kelleher's assessment early last month was startling in its accuracy.
He said all western economies were either in recession or on the brink of it, and would suffer major problems over the next few years, warning that the Bank of England must forget trying to fight inflation and get interest rates down.
According to Mr Kelleher, deflation was now the bigger problem.
Davy has also been predicting a major increase in unemployment over the next year as companies realise that the credit crisis is not going to abate.
Mr Kelleher said that housing looms large as one of the primary causes of the problem: "It went hand in hand with a huge appreciation in prices," he said. "It was inevitable that the bubble would burst."
And it was. Yet, despite knowing this, investors kept fuelling the market and forcing property prices to rise to unrealistic values, and we all eagerly studied the newspapers that carried regular reports on how much our house was now worth.
Month after month, prices rose at a rate that could not possibly be sustained indefinitely, and the banks and other money lenders invented new ways of encouraging people to borrow as much as possible.
Mr Kelleher summed it up rather succinctly: we “binged” on credit. And we wallowed in the artificial values of our homes.
Collapse was inevitable. The dowturn in the housing market left banks with toxic assets secured against debts.
And when coupled with a large rise in commodity prices and the credit crunch, pain was unavoidable.
Outlining a scenario in which these assets had to be sold, causing a further depression in property prices and triggering further asset sales, Mr Kelleher awakened the idea that we could be facing a situation not unlike the great Depression of the 1930s. Little wonder then, that world governments are working so hard to prevent further deterioration in the markets.
If allowed to run its course, the recession, according to Mr Kelleher would not be reversed "this side of several years". Even now, despite the measures being undertaken to underpin the banking system, Davy has warned that the economy is set to shrink by 3.5% next year.
Unemployment queues are growing, and the construction industry has accounted for 60% of that rise. It seems to be all bad news at the moment. Ironically, the one thing that made Northern Ireland's economy so unbalanced — its unhealthy reliance on public sector employment — has offered some hope, at least in the short term.
Public sector jobs are likely to be less hard hit than those in the private sector over the next year. But the economy in the North West is not as well equipped to slow the effects of the recession as Belfast with its high ratio of people in public sector jobs. The recession also comes at a time when jobs are being dispensed with due to the Review of Public Administration.
The next 12 months will be crucial, and if the political measures pay off and bank lending to credit-worthy businesses and households picks up, the effects of the recession may be dispelled more quickly.
Otherwise, years of financial misery may lie ahead.
But we have to take an optimistic view. After the downturn reverses, the only way is up for the North West. The possibilities are endless here once money starts flowing again through the construction industry, with Ilex preparing for the development of sites that, together, are the equivalent in size of the walled city. As many as 8,000 jobs could be created at Fort George and Ebrington, and thousands more in construction.
In the meantime, every little helps and the continued drift of consumers from the Republic, fuelled by food prices that are rising quicker there and the strong euro, will be welcomed by traders on this side of the border.