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Bulls, Bears and Bureaucrats


Socializing the marketplace.

I have remarked before on the "socialization" of markets: the creeping intervention and manipulation on market forces by government action. Socialization is the knee-jerk reaction that we can always expect from our bureaucrats. They don't believe, or won't admit, that markets allocate capital and resources more efficiently than they can. They do believe that the trouble we are in is actually caused by free-market forces run amok.

They don't see, or won't admit, that in reality our current problems are caused specifically by market intervention: market forces were not allowed to balance the economy when they wanted to (time and time again).

The greatest socialist invention of all-time, the Federal Reserve, stepped in over and over and forced debt into the system when the system didn't really want it. The debt found the only part of the market that wanted to borrow money: the highly speculative part that tends to seek too much risk for reward and speculation in asset prices reached new levels.

Now that debt has come home to roost, we see our bureaucrats coming up with solutions to "fix" the problems created by this intervention under the guise of markets run amok. One such political solution mentioned is to "freeze" interest rates for a segment of the market smacks of hubris and misunderstanding of how an economy, especially one the size and scope of the U.S. economy, actually works.

Interest rates are the cost of money. If our next president says the cost of money is too high, the world will see that as the value of the dollar is too high. A freezing of U.S. interest rates sends a signal to our lenders abroad that they will not be allowed to lend money at market rates but only at political rates. They will balk and the value of the dollar will collapse.

Get ready for more of this, for bureaucrats' stripes don't change. The market is a bad and cold place for them to fix in their wisdom and they can't resist.

But make no mistake, the market eventually will do what it has to do, no matter their folly. Freezing interest rates is an artificial intervention that will manifest in other bad ways, namely higher prices for U.S. consumers. They will get to pay less on their loan but it will be made up in higher costs elsewhere.
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