Why Have We Abandoned Markets?
It astonishes me to see how quickly this country has embraced a socialist mentality and how readily it has accepted the belief that the source of our problems was an unfettered free market. Perhaps it is because those in power do not understand what the term free market truly means. If they indeed understood what a free market entails, then it would be impossible for them to lay blame upon it.
A free market can be defined as a certain population of individuals that are allowed the freedom to make independent decisions as to what they want to produce and consume with their capital. It is the votes they cast with that freely allocated capital that provides for maximum efficiency and growth.
But the credit crisis that began last year has been used as an excuse to vilify markets and promote government sponsored usurpations of Detroit and financial institutions. The war against markets was stepped up in June when the Obama Administration sought to overhaul the financial regulatory system. Again the free market was blamed for the greed and excess of banks and Wall Street. The solution proposed was to set up a new regulatory body called the Consumer Financial Protection Agency and to merge the Office of Thrift Supervision with the Office of Comptroller of the Currency. The Fed and Treasury would also have their powers expanded.
The point that government refuses to recognize is simple: it does not matter if you create fifteen new agencies with thrift oversight responsibilities. It wasn't the fact that we had a dearth of supervision that caused systemic over-leverage to occur. It was the knowledge that if a financial institution got in trouble, the Fed would avail them of an unlimited amount of money at near zero percent interest. As long as the Fed continues to inculcate that bail out posture, the situation is guaranteed to again occur in the future.
The regulation drum beat continued yesterday with the announcement that the Commodity Futures Trading commission (CFTC) would seek to restrict commodity futures holdings of index and exchange-traded funds. Once again the free market is blamed for allowing rampant speculation in oil and other commodities that drove the prices "unreasonable" high. But the facts just don't support any such claim.
What they want us to believe is that it was greedy speculators that drove oil to a record high of $147 per barrel last summer. Not that the move had anything to do with the intrinsic supply/demand metric or the fall in the U.S. dollar. I wonder if they also blame speculators for the fall in oil from the $147 in July 2008 to $33 a barrel in December 2008.
The truth is that at the time oil reached its all time high, the explosion in money growth from the commercial and shadow banking system drove M3 up 16% YOY in July 2008, which concurrently sent the US dollar to an all time record low of just above 70 on the Dollar Index. In addition, there was the synchronized boom in global GDP in 2007 that put pressure on oil supplies into 2008.
But by the end of 2008 the dollar soared to actually close the year up 7%. The collapse of the shadow banking system caused a decline in the rate of money growth and global GDP rates came crashing down. Of course none of this is viewed by government as the reason why oil traded down to $33 a barrel by the end of the year. All that is sought is to use the volatility in commodity prices as an excuse to impose more regulation on the private sector. What they ignore is the fact that speculators help increase the liquidity of markets and are essential for their proper function.
As long as failure is allowed to occur, the free market is effective. It is only when government interferes with the cathartic process of creative destruction that the system collapses. Unfortunately, what we see today is the exact opposite environment being promoted, with a huge increase of meddling into the private sector by government. Instead of blaming the market our government should be working to supply a level playing field and provide maximum incentives for the private sector to flourish. Until we re-embrace the idea that markets are the solution not the problem, look for continued erosion in our economy and our freedoms.
Michael Pento is the Chief Economist for Delta Global Advisors and a contributor to greenfaucet.com
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I love markets - especially the ones that don't rob me blind!
"Let's begin with capitalism, a word that has gone largely out of fashion. The approved reference now is to the market system. This shift minimizes - indeed, deletes - the role of wealth in the economic and social system. And it sheds the adverse connotation going back to Marx. Instead of the owners of capital or their attendants in control, we have the admirably impersonal role of market forces. It would be hard to think of a change in terminology more in the interest of those to whom money accords power. They have now a functional anonymity.
"We the People" didn't abandon the free markets. They abandoned US long ago.
There is and never has been any such thing as a free market. There have always had to be laws and controls in place to control outright criminality. If you want a true free market move to Somalia.
Friedman's free market ideology is predicated on people acting logically and with the best interest of the corporation for whom they work in mind. The no loyalty to the employee, bottom line mentality engendered no loyalty tot he company get what is in it fore me mentality among employees. You can easily see the result. People have not "suddenly" or easily divested themselves of the "free market mentality"; clearly those who have profited cling to a system that has been flawed from the outset. The market is most free within a paradigm of clear, and evenly applied, just, laws. I see none of that in the system we currently have.
You are right ... it's not the markets - it's the criminals RUNNING the markets that need to be addressed. Instead we just gave them trillions and they are back to giving themselves mega-million dollar bonuses taken out of our tax money, and the tax money of our children's children.
Wall street and the commodities markets both need to be blown up, every major player should have all their assets seized, and we should just start over - with the current players prohibited from participating for life. The end.
Your argument only holds water if all the banks, insurance companies etc. were allowed to go down with no help from the government. Then I could agree with you. I believe that no help should have been given these firms.
The failure so far has been a reluctance to seize the Wall Street banks, fire and incarcerate the bankers and seize their ill-gotten wealth, and reconstitute the businesses with people who are not pirates and criminals. The "Free Market" somehow got the idea that is was free to rape and pillage the rest of society. It should be disabused of that idea quickly and forcefully.
FREE MARKETS ?????
WHERE ??????
AS LONG AS BARRIER TO ENTRY LAWS EXIST THERE CAN BE NO FREE MARKETS !!!!!!
BARRIER TO ENRTY LAWS PREVENT COMPETITION !!!!!!!
STOP SPREADING BS AS THE TRUTH !!!!!!!!
Please!
.
Why Have We Abandoned Markets?
stupid question.
Because it has become blatantly obvious
that the market is totally corrupt
and manipulated by Goldman Sachs
and alumni
.
Privatize profits and socialize risk- that's the "Fiscal Conservative" way.
And, as recent events have show, the country is still being run by "Fiscal Conservatives".
There are two critical deficiencies in the "free market" strategy, and we have witnessed all of them lately, to wit:
(1) CRIME: Crime, not prosperity, is the firstborn son of economic activity. We must be realistic and acknowledge that, if someone can seize billions of dollars for themselves by stealing thousands of dollars from millions of people ... they WILL do so and they will not apologize for so doing. We need look no farther than Ebenezer Scrooge and Jacob Marley for that cautionary tale!
(2) "IT'S ONLY ONE BALANCE-SHEET WIDE": When I look at "my" company, "my" shareholders, "my" bottom-line, I don't see "yours," and I don't see "outside the box." In fact, many shareholder lawsuits have been filed for failing to maximize short-term returns.
It is necessary, however, for SOME entity to take a longer, wider view ... and to impose(!) that view. That entity is "a government
Stretching my point: if it were not for the Ghosts, with THEIR view, old Scrooge would never have found what might have been. Our society, too, must discover "what can yet be," for all of our sakes.
"Why Have We Abandoned Markets?".
Ummm...doe
I thought it was, fool me twice, won't get fooled again...
:)
THE ENRON LOOPHOLE IS MOVING FROM MARKET TO MARKET, THE BIG BOYS ARE PALYING A SHELL GAME WITH OUR MONEY, BACK OFFICE TRADING TURING OVER BILLIONS, WHILE STEADILY TELLING CLIENTS TO INVEST FOR THE LONG TERM
PLS you cannot fool those who follow and research themselves, i am in the industry
Yes, and our representatives in Congress have become stakeholders in this insider trading as they buy into the companies they are supposed to be regulating.
Dude you are lying your butt off, there was no pressure from consumption at all, we had a global lowering of consumption and Saudi Arabia was unveiling a new massive oil field last year..
I saw the 20/20 special did you!
The markets should be abandoned for lack of transparency deception and subterfuge, additionally the Bush Crony regulators were nothing of the sort they constantly looked the other way, and avoided prosecuting the blatant wrong doing on Wall Street,
So yes de regulation and lack of transparency and crooked profit driven crooks cause the meltdown.
That whole aig Goldman Sachs partnership, was enormous insurance fraud in my book.
First the govt stepped in as insurer of last resort due to the mortgage assets that were toxic,
Then the govt bailed out aig, and they a top insurer, paid these same corps for their losses in the mortgage market. And then aig paid all over again, I have never been paid for a wrecked car twice never ever. Insurance is to make you whole on your loss, not for you to gain more from the loss as all these corps did
People who preach of a monetary system as if it were a religion should be highly suspect. I was born into a system that guaranteed me and my children 45 years of hard labor in order for a small group to live like Kings and Queens. And for this exchange we get lots of ‘stuff’. Accumulating shiny bubble stuff I am taught is the true basis for happiness.
I wonder about a system whose very survival we are told depends upon a growing GDP. How is that any more intelligent than a bacteria colony in a Petri dish consuming to the point of its own extinction?
Unquestionably a system fueled by our worst instincts is efficient at turning raw resources into stuff. Sometime in the future I expect archeologists, maybe even alien archeologists, to uncover our massive waste dumps and postulate they might have been our temples. Sadly I think they’d be right.
and massive consumer spending
we have been had, the old factories have been replaced by call cventers inthe south.
i fele the crunch as well.
it is crazy to realize this evolution of such savage working conditions. it is i all a shell game to keep you working and buying stuff you do not need.
you will never make enuff money to leave the job, but the credit card co and banks will give you extensive credit on money you still have not earned,
tell me, when do you get to zero and start building in the system if you are in hock form your college years and beyond
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