Government Induced Uncertainty – Perfect for Speculators, Suicide for Investors

I’m talking here about uncertainty because of gross government interference in the economy and in the business cycle, not uncertainty normally connected with any new business investment. Business people are used to dealing with uncertainty in they daily lives.

When the government changes the rules at their whim, or creates huge national debt and massive spending along with potentially large increases in tax there are just too many unknowns on which to plan a new investment.

This is made worse when governments do these things throughout the period of a business investment. Any one of the government changes could make an investment unviable after a business has committed significant resource to it.

Add to that banks are not lending to small business because they have no confidence either and because their money (much of it taxpayers money) is safer in their hands speculating on the stock market or deposited at the FED where they can get paid interest.

One last problem is many business may be waiting for “their turn for a government handout” so they may not invest in a new venture until/unless the government subsidises it and them.

The basis of our financial system is flawed  and so nothing will be fixed until governments have the guts to change the system. It is inherently unstable to begin with.

  • Booms and Busts will continue until the world bans the fractional reserve banking system, and creates a free banking system.
  • Booms and Busts will continue until central banks are removed and private banking made accountable for bad investments and over-leveraging and are allowed to fail. At the very least they should be forced to allow interest rates to float and find their “natural level” for the economic climate at the time.
  • Booms and Busts will continue whilst ever governments believe there are votes in forcing banks to make below market interest rate loans to people who cannot afford them.
  • Booms and Busts will continue until governments stop believing that printing money is actually protecting their nation from the downside of a boom and accept business that do bad things or make mistakes have to fail so the capital can be freed up to go where it can do the most good.
  • Booms and Busts will become bigger, faster and more frequent due to technology. We have just seen how massive liquidity from printed money (doubling the money supply) has fuelled a stock market rebound that no one predicted. Even though it may be short lived savvy speculators have made a fortune including the banks saved by the tax payers.

  • Whilst ever governments try to re-ignite the boom and prevent the bust tax-payer money will be spent and billions will disappear in an effort to defy economic gravity.
  • Even if the great Keynesian experiment of spending our way out of a recession works, the cost of the debt will have such an adverse affect on the economic growth over the long term, as money that could have been invested goes to pay off the debt and as the people are taxed more to finance that debt. Or more money is printed to inflate the economy out of its debt and cheat the bond holders including China.
  • As the IMF becomes a world bank with no accountability to any national government or law we can expect even bigger financial crises as they create money through the use of SDR’s ($250Bn created this year so far) and redistribute the wealth of the west to nations that have no or few laws, no or little government infrastructure, and many of whom’s biggest industry may be creating corrupt politicians.
  • Price has been perverted. We can no longer rely on the price of major items. What is a “fair” price? If you buy now is it going to be significantly cheaper tomorrow or is the government going to offer a subsidy? Houses, cars, and even investments have all had their price grossly manipulated in an effort by governments to “protect the economy” and jobs.
  • Mortgage Contracts have been broken, original house prices changed on mortgage documents, money given to people to purchase new cars. All these distort the true price. How can GM work out it’s true profit when the government has bailed it out and then offered it’s customers tax payer money to buy its cars? Contracts don’t mean anything anymore.
  • “Too Big to Fail” will continue to be the business model for powerful financial institutions in bed with government and will result in always destroying the peoples’ wealth to preserve the corrupt and fraudulent banking system.
  • Until all the Universities teach all branches of economics including Austrian and the full history of economics we cannot hope to have the majority of economists think that spending to get out of debt is irrational. Universities are no longer a place of learning and discovery, they are a place for brainwashing and imposing one view.
  • Fannie and Freddie now have an open credit with the government for as much money as they need. They own or control 95% of US mortgages with the Treasury and the FED buying up the mortgage backed securities. This is all toxic debt. Fannie and Freddie are one big black hole for taxpayer money for years to come.
  • Major parties in most democratic countries have fought for the middle ground which includes using taxpayer money to finance people who don’t work, people who do work but pay no tax, but all are voters. Many of these people will continue to vote for those politician as that give them the most benefits for FREE. We are at a tipping point where they will be more “have not’s” than “have’s” so winding back the welfare and handouts might be almost impossible.

So without a stable economy and a government that does not change the rules and does not bailout whole industries using tax payer money, and stops breaking contracts and upholds bankruptcy laws we can be sure of one thing – UNCERTAINTY. In such an environment investment in anything is a risk. But in such a risky environment, speculation can have huge rewards because of the high volatility.

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