How to answer 5 tough economic questions

There is a lot of stress in the global economy, and that’s going to put a lot of stress on you. You are going to get some tough questions over the next few months, so here’s a cheat sheet on how to respond:

1. Is Europe Going to Self-Destruct?

Answer: Maybe.

The euro may encompass a different, smaller group of countries within a couple of years. Or the Eurozone might stay intact, but in the process a tough recession could turn into a long-term economic malaise for the continent. Regardless, Europe is going to be a drag on the global economy for awhile.

Read: The Eurozone won’t collapse

One point to make: as long as the situation in Europe looks dreadful, Canadian interest rates will stay low.

2. Should I be Worried About Inflation?

Answer: Not for a long while

Government bond yields (of any developed country, with the possible exception of Australia) are ridiculously low, and in a few cases have actually turned negative. That seems inconsistent with the fact that monetary authorities around the world have been printing money to stimulate growth. Economic theory says prices have to rise eventually.

Read: Is Canada headed for a U.S.-style meltdown?

Thing is, there’s not enough economic strength to sustain much of a broad rise in prices. We will continue to see energy and food prices ratchet up, but we are not close to the kind of inflation that shakes up investments. And, if we get closer, central banks can always slam down on monetary policy (believe me, the Bank of Canada will be the first to do that).

3. What’s the Chance that Canada Goes Into Recession?

Answer: Slim

Let’s think back to the 2008 global meltdown. We had a perfect storm of an economic mess in the U.S., housing markets around the world were collapsing, and blue chip financial institutions were collapsing. And yet, Canada only went into a short, shallow recession.

Read: Canada could fall into recession: Moody’s

Even with the risks from Europe, Canada is unlikely to head for a full-fledged recession anytime soon. If things get weaker, there is room to cut interest rates and to use some fiscal stimulus too.

4. Will the Policymakers Get it Right this Time?

Answer: They’re trying, but only one side of the table can change policy

In 2008, when the economy went down it was all hands on deck: governments spent money and cut taxes, and central banks cut rates and bought bonds. Cut to 2012: governments around the world are tapped out, so it’s up to central banks.

They are still going full speed — the European Central Bank just announced a new round of bond buying and the Federal Reserve will probably do the same.

Read: Draghi unveils OMT; markets rejoice

Even if it is not quite as much of an all-out effort, at least in North America the situation right now is more about economic lethargy than economic collapse. On top of that, central banks learned a lot these past few years so they presumably they will apply that knowledge as needed.

5. Can I Still Make Money in an Economy Like This?

Answer: Yes.

Add your own details as to how you are making that possible.

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Linda Nazareth is an economist, author and media commentator. Get 30% off her new book, Economorphics, by going here. Visit her at economorphics.com.