Economist Joseph Barbuto of Economic Long Wave painted a stark picture of Canada's economic future, likening it to an impending "economic winter."
In a recent interview with KelownaNow video host Jim Csek, Barbuto discussed the four-season economic cycle, Canada’s private debt bubbles and cycles, the Liberal government’s policies and more.
Barbuto also compared Canada's stagnant growth and real estate focus to the US's innovation-driven strength and higher valuations.
Drawing on the Long Wave theory, originally developed by Russian economist Nikolai Kondratie, Barbuto explained that economies cycle through four seasons: spring, summer, fall, and winter.
He argued that Canada is transitioning from fall, characterized by financialization since the 1980s, into a harsh winter of de-leveraging and asset collapses.
"The economic Long Wave theory is... sort of similar to the fourth turning, and there's four seasons," Barbuto said.
He noted that the post-World War II boom from 1946 to 1981 represented spring and summer, marked by innovation, real wage growth, and economic expansion.
However, the shift to fall brought financialization, culminating in a massive real estate bubble that peaked in 2022.
“During this period of economic winter there's a massive amount of creative destruction from politics to economics, to innovation, to societal direction," he said.
"Economic winter is a period of massive de-leveraging asset prices, repricing dramatically lower, political upheaval, and a restructuring toward a new economy. That will take a generation to complete."
.png)
Barbuto highlighted Canada's private debt bubble as a critical vulnerability, describing it as "larger than Japan was in 1990, larger than the US in ‘29 and larger than the US in 2007."
He warned that converging cycles, the long wave downturn since 1981, a demographic peak between 2022 and 2024, and a rolling business cycle, could lead to a severe recession.
Comparing Canada to the US, he pointed out lower US private debt but higher public debt, attributing America's edge to innovation and productivity.
"The US is much stronger is innovation and productivity... we've gone sideways for 10 years and I think that's really 'cause so much capital was going into real estate speculation," Barbuto stated.
Policy missteps exacerbate the risks, according to Barbuto, who criticized centralized government spending and likened current trends to Keynesian economics gone awry.
“Well, governments just kept spending, and here's my concern: We have the convergence of three cycles turning down. And these cycles historically mean a severe heart landing for the country involved,” he said, noting limited fiscal room for bailouts amid high debt levels.
He drew parallels to Greece's 2012 crisis, where yields skyrocketed, and expressed concern over potential banking, fiscal, and currency crises in Canada unfolding over the next two to ten years.
On the prospect of hyperinflation, Barbuto leaned toward deflation, arguing that skyrocketing interest rates would bankrupt real estate and governments.
"I believe it'll be deflationary... hyperinflation will be almost impossible because of the skyrocketing interest rates and what that would do to government finances and real estate," he explained.
He also lamented Canada's decision to sell its gold reserves in 2015, calling gold an "antiquated asset" per policymakers, while noting recent surges in gold, Bitcoin, and silver as signs of a monetary reset.
To prepare, Barbuto urged Canadians to act swiftly.
"First de-leverage before the economy forces you to... protect the value of your assets. If we're going into a fiscal crisis and currency crisis, obviously gold and Bitcoin have been going up for a long time," he advised.
He emphasized watching cash flow, akin to Japan's "Cashy Flow Energy Mental" approach in the 1990s, and avoiding flashy displays of wealth during downturns.
"Make sure that you're able to weather a downturn," Barbuto cautioned.
Barbuto, who will speak at the Canadian Bitcoin Conference in two weeks, stressed the importance of preparation for what he sees as a generational shift.
"We will come out of this, but it's going to be a difficult one or two decades," he concluded, aiming to share a "survival kit" to help individuals and institutions navigate the turbulence.
