It’s been an interesting week.
Joe Biden, Democratic candidate for Vice President, said this week that:
“We want to take money and put it back in the pocket of middle-class people,” Biden said in an interview on ABC’s “Good Morning America.”
Noting that wealthier Americans would indeed pay more, Biden said: “It’s time to be patriotic … time to jump in, time to be part of the deal, time to help get America out of the rut.”
In other words, it is your patriotic duty to give your money to the government, because they know better than you where they should spend your money.
Sounds like socialism to me.
I wholeheartedly agree that we should each help those who are less fortunate than ourselves, and I do. But I prefer to help others by helping people directly (such as helping friends and family when they need a hand) and donating to charities I support (because they are much more efficient than a government bureaucracy).
Then, today, the SEC banned short selling on 799 financial companies. Short selling occurs where you borrow a stock and sell it. You hope that the price will drop, so that you can buy it back, for less than you sold it for, and return it to the original owner. Short selling has existed for centuries.
The SEC believes that short selling drives the price of stocks down, and to a certain extent they are correct; that’s the law of supply and demand. But here’s the rub: at some point the short seller has to repurchase the stock, and that drives the price back up.
If everyone is shorting a stock, at some point the smart money will start buying. It’s called a “short squeeze”, and it drives the price back up, sometimes very rapidly. That’s how capitalism works. We place our bets, and sometimes we win, and sometimes we lose.
But now, the government has said that they are suspending capitalism; you can only drive prices higher, not lower. This is a very dangerous precedent.
Sounds like socialism to me.
Then we have the Federal Reserve hard at work to “inject liquidity”. On Thursday:
The Federal Reserve plowed $55 billion of temporary reserves into the financial system on Thursday as part of a concerted global bid by central banks to free up frozen lending markets.
It appears now that the government will also be buying or guaranteeing everything else. You can’t lose.
Sounds like socialism to me.
Unfortunately risk is an essential element of capitalism. Sometimes you lose. The government, starting in the Clinton and Greenspan era, encouraged people who couldn’t afford it to buy homes. They couldn’t pay, the mortgages lost value, and people lost their homes. That’s what happens when you buy something you can’t afford. You can’t protect people against market forces.
So now, the government will take over everything. I guess they will start nationalizing the auto makers next, since they are also insolvent. Then the government will own everything, no-one will have any incentive to take any risk, innovation will be stifled, and we will be in for a long financial depression.
Sounds like socialism to me.