Pacifica Partners’ Financial Post Weekly Column – Sept 17th 2009
Some of the most heated arguments in public discourse these days revolve around whether or not the role of government has become overly pronounced in the functioning of the global economy. In the US, town hall meetings on health care reform have erupted into physical violence as some individuals have come to fear the possibility of increased roles for government in the provision and delivery of health care. In banking, public anger has led some members of congress to declare that in that in future they will “just say no” to bailouts.
At the peak of the financial crisis, government intervention was crucial to keeping the world economic system from going into freefall. That being said, for now markets are satisfied that the crisis has passed and are pricing in a return to economic growth. The big question is how sharp the recovery will be. Will it be “V – Shaped” (sharp rebound), “U shaped” (slow laborious rebound), or “W shaped” (double dip recession). As consumers around the world focus on rebuilding their balance sheets by cutting back on consumption and increase their savings rates, governments are trying to incent them to buy cars (Cash for Clunkers), new homes (tax credits for homebuyers), and ultra low interest rates.
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