Sunday, July 26, 2015

When Authorities "Own" the Market, The System Breaks Down

When Authorities "Own" the Market, The System Breaks Down: Here's Why:



Central planning asset purchases aimed at propping up prices destroy the essential price discovery needed by private investors.
With investment information and feedback now distorted, private investment dries up, leaving productivity and growth stagnant.
In system language, the markets are now tightly bound to central planning policies: any change in policy has an immediate and potentially disastrous effect on the values of assets.
This is why buying assets to prop up prices is a one-way street: once you distort markets to prop up prices, you destroy information, independent price discovery and trust-- all the essentials of a market.
What authorities have created is a facsimile of a market. It looks like a market on the surface, but only gamblers and fools risk capital in markets based on false information.
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In effect, central planning asset purchases aimed at propping up prices destroy the essential price discovery needed by private investors. With authorities buying assets, investors have no place to put their money that isn't exposed to sudden policy changes by authorities.