Posted on 12/11/2009 11:01:19 PM PST by SupplySider
Even if the Federal Reserve gets around to strengthening the dollar--which would do wonders to get the economy really moving again--we still face a mammoth and growing problem: the government's increasing domination and distortion of the capital markets. It's not only the need to finance Uncle Sam's deficits that crowds out other credit seekers in the marketplace. It's also the proliferation of government entities (think Fannie Mae and Freddie Mac), government loan guarantees, tax credits and the government's growing sway over the banking sector. Even if Washington's red ink were back to the levels of a couple of years ago, these trends would be disturbing.
Look at what's happened to the credit markets. Government-sponsored enterprises Fannie Mae and Freddie Mac, with their implicit government guarantees, were able to totally dominate the mortgage market. They could borrow cheaply and leverage up on a scale no private company could. When they went bingeing on subprime mortgages, they ended up twisting and then destroying the housing market. The private sector was quite capable of generating players that could have performed Fannie's and Freddie's roles. And because they wouldn't have had Uncle Sam's moral-hazard safety net, they would have been infinitely more cautious, even with the Fed creating floods of liquidity and the credit rating agencies forgetting their raison d'être. Yet Congress is determined to keep these beasts alive and under government sway. Washington is also taking over the student loan market.
(Excerpt) Read more at forbes.com ...
Steve Forbes may be the clearest policy thinker in America today.
Laminate it. /sarcasm
The spiraling lack of trust is destroying the credit system. The M1 multiplier (see Fed reserve site) is at .81 and continues to plunge.
The Fed is finding to its dismay that the real currency is Trust, not the dollar.
That’s a key point. America historically attracted capital and investment because of that trust - safety, in the form of an established legal system, rule of law, respect for property rights and enforced equitably, etc. Mom, Dad, Apple Pie and Chevrolet. Money always and ever goes to where it’s treated best. I don’t think politicians can ultimately change that.
What? Everytime the DX (dollar index) shows weakness, the market goes up.
Certainly true. When the Fed prints too many, the markets devalue them.
A full size laminated buck might be worth something on eBay one day. In the Weimar inflation they printed so many marks they had to use tiny pieces of paper and with ink on only one side.
Great point. For all their command and control schemes, they cannot force the world to hold dollars.
I can't claim to know what moves markets, but I read that a weaker dollar makes our exports cheaper to foreigners, thereby boosting the stock prices of export related companies.
Correct me if I'm wrong, but oppressive government control of business by way of political regulation is called fascism.
The Fed is finding to its dismay that the real currency is Trust, not the dollar.
GRRRREAT post, Vet_6780!
Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion—when you see that in order to produce, you need to obtain permission from men who produce nothing—when you see that money is flowing to those who deal, not in goods, but in favors—when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you—when you see corruption being rewarded and honesty becoming a self-sacrifice—you may know that your society is doomed. - Ayn Rand
Have you seen this thread?...(thanks dennisw)...
In letting the derivatives market grow to the size it did with little tracking or transparency, De Soto says, Americans breached a law so fundamental that it is unwritten. In the West, ever since feudalism collapsed, “the market made an effort to record everything so that paper meant something,” he notes. This happened without the mandate of any central government. “If I asked you, where is the ministry of property in the U.S.? You’d say we have no ministry of property. Sometimes you don’t need it.”Yet title to every house, car, mortgage, bank account and patent had always been reliably documented. “It’s not a fundamental law written into your constitution but an unwritten law that you have not respected, which is that paper means something,” he says.
Much, much more...here...
http://www.freerepublic.com/focus/f-news/2406524/posts
Well, the ferocious rally just got us back to where we were before the crash.
In any case, I don't think Forbes was talking just about market prices, but the deforming of the market itself, which will damage capital formation in the future as the overegulation takes effect.
To dovetail your comment...
In the link I gave you (above)...if you go to that thread...click on post #11 - which takes you to zero hedge...
...then, click on 02. Flawed Economic Model
Look at the 17:22 (De Soto’s opening comment) minute mark just past the 20:00 minute mark (the end of De Soto’s opening comment...”paper fails to represent assets”)
Enjoy
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