Tag: Deflation

The New Great Depression Book Review

The New Great Depression: Winners and Losers in a Post-Pandemic World by James Rickards beckoned from the new releases stand at the public library. This non-fiction work strives to evaluate the possible economic fall-out from the Covid-19 pandemic. The book includes a recap of early 2020 events as well as the author’s thoughts of outcomes in 2021 and beyond.

Rickards uses the first two chapters as a summary of 2020 social events. Naturally the novel coronavirus features prominently. But he also discusses the important consequences of political responses to the pandemic.

First, is the outcome of lock down’s. Rickards evaluates both the economic and health responses to the strict governmental edicts in 2020. He also discusses the tentative connection between the virus, the lock down and the social unrest that roiled through the United States and spilled over to other parts of the world.

The New Great Depression

The author turns toward economic thoughts in Chapter Three. He posits that a new great depression will mark the February 24, 2020 market downturn as a pivotal date. However, he believes the economic weakness began in the latter part of 2019 and the pandemic accelerated the time table.

Unemployment due to lock down layoffs figure prominently in the discussion. The service industry accounted for many of the job losses. Unlike manufacturing, lost services are just that-lost. A missed haircut in June will not be recaptured work.

Rickards theorizes a second wave of unemployment among higher paid labor due to the output loss from the first wave. He further postulates that output and job recovery will be hindered by the June 4, 2020 Congressional Budget Office report of unemployment benefits greater than employee earned income. This disincentive to work, if lasting, is of great concern. Rickards expounds on this point.

Modern Monetary Theory

Modern Monetary Theory (MMT) features heavily in the author’s warning of possible deflation and a potential for a new great depression. Much of this economic discussion is compelling. MMT and the overwhelming National Debt are the backbone of the author’s theory of deflation. His analysis is a bit depressing. As it should be, if his analysis is correct.

The three arguments for deflation hinge on a greater savings rate, a decrease in spending and a tightening in money velocity. All three are occurring now. But will that change once the pandemic recedes? Rickards says no. I am not so sure, although I concur with his thoughts on the dangers of MMT and the horrific level of debt.

Investment Possibilities

Even though much of The New Great Depression is sobering, the author outlines steps for individual investors to prosper. His proposal relies heavily on Bayes’ theorem, an applied math formula which many may not be familiar with.

Rickards also discusses diversity in investment. He does not consider a wide array of stock companies as diversity. I found his break down of investment disbursement quite interesting. And contrary to current thought.

While I am a bit more optimistic about a return to consumer spending and firmly believe in pent-up demand, I am not totally opposed to Rickards thinking. As readers know from my Inflation Check Challenge, I tend to think inflation is in store. But, The New Great Depression definitely provides a legitimate counter point. I believe all those in the audience with interest in the economy will greatly benefit from reading this author’s point of view. Much food for thought!