[quote=pri_dk][quote=CA renter]In a truly “capitalist” system, rates would be determined by “the market,” not by the Federal Reserve.[/quote]
The Fed has a big influence on the market price of some instruments, but the vast majority of our markets are pretty close to true capitalism.
I’m not really sure what you are arguing here: Are you against central banking? That’s a complicated debate and the alternatives may not be any more appealing.
[quote]While I know that many believe “risk takers” deserve to make lots of money simpley for “taking risk,” [/quote]
You bring up this point often, and it is a strawman. Nobody is arguing that prizes should be handed out for simply taking risk. There is a difference between “risk” and “recklessness” in the context of investments.
Risk is another word for “getting things done, trying new things, taking initiative, pursing new ideas, thinking outside the box, etc.” (Not all financial risk involves a hot new startup or product – most capital in our system flows to mundane activities like building a new plant or setting up a new field office.) Of course sometimes new endeavors create value, sometimes they don’t – that’s where the risk comes into play. All of the prosperity in America today is the cumulative outcome of endeavors involving financial risk.
Why do we reward the risk takers? Actually, we don’t reward all of them (or shouldn’t.) We reward the ones who take successful risks. In economics jargon, we reward those who most effectively allocate capital. It’s basically a process of natural selection, and history has proven that it works well.
I do agree that our economy should be primarily driven by investment and not speculation (two activities that have a lot in common, but are fundamentally different.) An ideal solution would be one where we could eliminate massive speculation without stifling investment, but there’s no easy way to implement this.
I’m in favor of increased regulation and substantial restrictions on certain activities, such as leveraged derivatives trading. But we have to be careful how we do it. Our economy needs capitalism now more than ever.[/quote]
Yes, I’m against central banking (and fractional reserve banking), especially as it exists in its current form.
BTW, there is no way someone can make the argument that we only reward those who most effectively allocate capital. What we have today is a financial system that rewards those with the right connections — especially those with connections in government and the Fed. It rewards those who create laws and a financial infrastructure that funnels money back to themselves; it has nothing to do with productivity.
