Thursday, 4 July 2013

Stock Market Bailout

By Llewellyn H. Rockwell, Jr. (November 1999)

At some point, and nobody knows when, the stock market is going to reverse its climb. It may even collapse. It is interesting to speculate on what kind of political response that would generate. Given the politics of entitlement and the propensity of the Fed to intervene, the picture looks pretty grim.

Ideally, of course, the government and the Federal Reserve would do nothing. A virtue of the free market is that its prices reflect underlying realities when they are permitted to do so. When they are distorted by a credit-fueled "irrational exuberance," a correction restores rationality. For that reason, falling stock prices would be welcome.

But because stock-ownership is so widespread, the financial socialists in DC will attempt to use the public fear generated by a bear market to enhance their power. That's what they did after the 1987 crash, when the regulators imposed strict new controls. And in arguing for the Mexican bailout in 1995, the demagogues openly invoked fears of falling stocks as an excuse.

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