Tuesday, July 20, 2010

The Great Reflation | Wealthy Boomer | Financial Post

I haven't read this book yet, but it looks like it could be interesting.

Titled The Great Reflation, the book discusses how governments and central banks intervened in the most recent financial crisis to prevent depression and deflation. However, warn the author Anthony Boeckh, government intervention has its consequences, and there could possibly be more trouble ahead.

At first I was tempted to dismiss the book as just another in a series predicting financial chaos due to inept government actions. However, this is apparently not the theme at all. Instead, Boeckh is suggesting that investors should be prepared for a roller coaster ride in the capital markets as the authorities attempt to gradually withdraw from the markets without creating another credit crisis.

From what I know so far, I would generally agree with the author.

Mr. Boeckh used to write for The Bank Credit Analyst, which I have read for years and believe does a very credible job at dissecting economic trends.

I had attached a column by Jonathan Chevreau in Toronto's Financial Post which discusses the book. Here's an excerpt from the column:

"To rescue the economy and financial system from near-total meltdown, the government created an unprecedented package of bailouts, stimulus, free money and massive fiscal deficits. It succeeded, and a 1930s style debt deflation and depression were aborted. Liquidity on a vast scale was unleashed into the financial system…"

The stock market rally of March 2009 until a few months ago was one of the fastest rebounds on record. But as investors are now starting to realize, it’s not clear whether this can continue, has already stalled or whether we have another gut-wrenching downturn to endure. To quote Boeckh again:

"Just because the system was saved, doesn’t mean it has been fixed."

The Great Reflation | Wealthy Boomer | Financial Post