The Market Is Failing

Note that I did not title this post “The market is FALLing.” That may be true as well. But the market is failing because the “powers that be” are cheating. I have been reading an interesting article on the current situation we are in. One quote from it summarizes the problem with modern “economics.” 

Of course, people respond to such distortions.  When the government fixes the price of something too low, then people will hoard or export it.  If the price is fixed too high, then they will flood the market .”

Because of these market distortions lots of very odd things are happening—like the very low interest rates that are the current “market” price.

When I googled market failing, this picture appeared. As a Mac guy I could not resist using it

The second part of the article points out that under the almost gold standard pre-1913, the interest rate was 3 to 3.5%. After the creation of the Federal Reserve, interest rates were anything but stable—varying from 18% in 1981 to 1.7% today

With the artificiality of our system today you cannot rely on prices to be rational. In the real estate field, these artificially low interest rates mean that we cannot trust the “market” prices for real estate. The low interest rate raises the “market” price of real estate. The market is so corrupted that investors have no real idea what anything is “worth.” 

Based on current rents, real estate in many markets looks cheap. Many foreign investors are right now buying rental housing in selected markets. Will these rental rates continue? No one knows. The last time any nation tried to buy up US real-estate was the Japanese in the 80’s. It ended badly for the Japanese. 

In a market where prices cannot be trusted, the rational thing to do is not to participate as much as possible. Self-sufficiency is nearly impossible in our modern culture without great effort. Instead of making investments that may be no more than putting your money in a bag of holes, as one prophet put it, try to become more self-reliant. 

We all make fun of the neighborhood boy, who if things do not go his way, takes his ball and goes home. But if the boy is bullied, or the “rules” of the game make it impossible to play, then going home is the totally rational thing to do. 

How does fraud work? Capital Account has an interview with a psychologist college professor who tells us how the rationale works. It involves, surprise, surprise, self-justification. I will have several more interviews on the subject of fraud over the next few days. 

Comments

[Eric Anderson]

No discussion of fraud and our broken "free market" system would be complete without Bill Black's appearance on Bill Moyers' Journal in 2009, about fraud in the Wall Street/banking/real estate racket. http://www.youtube.com/watch?v=Rz1b__MdtHY