Ah, there’s the rub. There’s no such thing as a free market. There hasn’t been in this country since the creation of the Federal Reserve. Why is it that when the government does a stimulus it is socialism countering captialism, but when the Fed lowers the rate it’s OK?
Not allowing markets to correct on their own is counter to capitalism whether it’s done by congress or the Fed lowering rates. You see, there’s no difference to me whether over leveraged homeowners are allowed to stay in their homes – the asset itself has lowered in value, so what is truly being lost is potential interest profit to the bank and equity wealth to the homeowner. The parallel with an individual homeowner is exactly that to the simultaneous fiscal and monetary stimulus done on the large scale. Both are “phantom” wealth/debt that when eliminated translates directly into cash MOVING hands.
Finally, you really hit the nail on the head about why the market cannot be allowed to act freely now. Too many pensions, 401ks and trillions in paper assets are tied up in the shadow banking system. And make no mistake, I am far more cynical than you about all of this.
