Markets now offer gambles in place of investments. An investor makes decisions from economic laws of supply and demand, competition and monopoly or war and peace. From, in other words, readily visible factors. Being readily visible to the investor, those factors become guides to where his capital may return a reasonable profit. Money then goes to where it is most rewarded. That guides investment to the most productive places. And from that, all prosper.
But today, via regulations, laws and central banks, governments have interposed themselves between the market and the investors. The worst part of that, is that government does not use economic criteria for its decisions as does a free market. Instead, a government uses political considerations, which are often uneconomic. A result of that, the law of government economic control: In a given economy, the poverty will be proportional to the degree of government control. Or you might say: “The more government controls the economy, the more poverty will exist.”
The reason for that: A committee sitting around a table cannot replace the millions of decisions made individually in a free economy. It resembles attempting the nuances of a sculptural masterpiece when the only tool available is a hammer.
Today, the U.S. government regulates economic enterprise so closely that it has preempted what were once management decisions to the point that large American enterprises are no longer run for their shareholders; they are run for conformance to government mandates. The shareholders, after all, cannot jail the managers. They are now just along for the ride.
Simultaneously, the once secure bond market of interest paying borrowers is preempted by Federal Reserve imposed artificially low interest rates that do not cover the risks of lending. Add to that, the regular spending of more than is available from income now a habit of government. The resulting debt is imposed upon taxpayers and it reduces the credit worthiness of government as it accumulates. While that goes on, the taxpayers remain in blissful ignorance until one day, they are presented the bill in the form of government cessation of benefits and increased taxes. They are always surprised and dismayed when this occurs, though it has gone ahead under their noses.
Meantime, in the pump-up phase, the government has inflated the values of stocks and real estate by pumping in ersatz money “quantitative easing” in FedSpeak, which has produced a bidding competition for those assets. The properties are not more valuable, it is simply that buyers have acquired mote money to pay for them so their price has risen. When all that air leaks out of the financial system in a collapse, the assets will return to their true market value instead of the government-inflated value and a lot of folks will own only half as much (or less) wealth as they had believed. Sine some of those will be banks, those will be undercapitalized and so, fail, taking their depositors with them.
With this to anticipate, we wish all a Happy New Year….