flickering pictures

Here’s some financial news for people who don’t read financial news.

Odds of winning a Lotto 6/49 jackpot: 1 in 13,983,816
Odds of being struck by lightning: 1 in 3,125,000
Odds that a given person will be in a fatal motor vehicle accident: 1 in 87
Odds that a five-card poker hand will include a pair: 1 in 4

Now the fun one.

Odds that a U.S. slowdown will cause a massive global recession in
about a year: 1 in 4

Says who?
Says the International Monetary Fund. It ought to know, too — more than any other organization, it’s charged with keeping the world economy on track, and the IMF folks aren’t usually an alarmist bunch. Its new report seems a little panicky, and warns world governments to use every tool at their disposal to stave off a potential financial disaster.

(For all you stats buffs out there, 1 in 4 is also the same probability that a given American will die of cancer. Scary.)

From the Report on Business:

The global expansion which has endured for years is now at risk because the U.S. slowdown will likely stick around well into 2009, the IMF projects in its latest global economic forecast.

Canada’s economy will muddle through, however, with sub-par growth, the forecast suggests.

“The global expansion is losing speed in the face of a major financial crisis,” the IMF warns in its global economic outlook, released Wednesday morning in time for this weekend’s high-profile meeting of economic policy makers in Washington.

What does it mean?
The IMF defines a recession as anything under 3 per cent growth per year.

Why do I care?
Well, if you have a stable job, you probably don’t. A recession may even help you if you’re looking to buy a home, since property values may dip back into a range that doesn’t require buyers to sell their organs. But if your employment situation is a little volatile — or non-existent — things may get tough.

In a recession, banks are reluctant to lend, because they don’t want to get burned by people defaulting on their debts. Fewer loans means less investment, and less emergency money for people and companies to cover short-term losses, which means more bankruptcies. Corporate bankruptcies mean lost jobs, which in turn create desperate people looking for loans they can’t get, further growing the pool of people the banks won’t give risky loans to. A less wealthy population also buys less, which means corporate profits go down, spurring more job cuts. And the cycle continues.

The bright(er) side is that as people become unemployed, prices tend to come down to keep sales up — or if they don’t come down, they at least don’t generally increase as quickly. So if you’ve got a good, stable job, you might actually be able to increase your standard of living — buying more things with the using the same income you had before.

Should I worry?
Not much point in that, since you can’t do a whole lot about it, other than watching your expenses and putting away whatever money you can for a rainy day. And 1 in 4 probably sounds more dramatic than it is. Following that rain metaphor, when the weatherman announces a 25 per cent chance of rain, you probably don’t grab your umbrella on the way out the door. If you get caught in a downpour though, you may wish you had.

On a related note, here’s an irreverent, informative stick-man explainer on the U.S.-based subprime crisis that caused most of this mess — the one you keep hearing about, but that none of the media seem to ever explain.

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