Markets Need To Clear

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The world is not coming to an end. It is only changing. Markets always clear but government interference makes the process difficult.

Currently there is a huge supply of houses hanging over the real estate market. Without government interference the housing market would clear in a month or two. Even on local levels every effort is made to make sure foreclosures trickle onto the market. Information relevant to buyers is withheld. Every asset will sell at the right price. Houses are no exception. An economic recession will end only when markets are cleared of excesses. Real estate prices still have a long way to fall.
Over the past several decades the financial sector has gained enormous political power. As a result, government policy has promoted the growth of large banks, hedge funds, brokerage houses and anything else related to assets and money. The financial sector has became so powerful that government is now a tool to be used for enhancing the value of financial assets beyond any levels that would occur in a free market setting.

Like any sector that has had government assistance, the bloated financial sector has become is an inefficient use of resources. In a free market setting such a situation would never occur. Wall Street is so bloated that it is self destructive. The financial sector must be cleared of excesses before an economic recovery can begin.
Economic recessions occur naturally as resources are shifted out of poor performing areas into more productive uses. Economic depressions occur because government intervenes and tries to prolong the status quo. Every effort is made to keep markets from clearing. Nothing good happens until the old is allowed to disappear and the new takes over.
In a free market, the good outweighs the bad but only the bad is easily visible. Hence there is a natural tendency to see failing industries without seeing emerging growth opportunities. In the 70s and 80s, it was easy enough to see the declines in the rust belt and labor intensive industries. The emerging opportunities in the computer industry were not all that visible. There is a natural tendency to try to save what is failing but the efforts always prolong economic hardships.
To experience an economic turnaround markets must clear. Government is prolonging the process.

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About Fantasy Free Economics

James Quillian independent scholar,free market economist,and teacher of natural law. Who is James Quillian? Certainly I am nobody special, Just a tireless academic and deep thinker. Besides that, I have broken the code with respect to economics and political science. Credentials? Nothing you would be impressed with. I am not a household name. It is hard to become famous writing that virtually no one in the country is genuinely not in touch with reality. But, if I did not do that, there would be no point in my broking the broken the code. If you read the blog, it is easy to see that there are just a few charts, no math and no quantitative analysis. That is not by accident. Given what I know, those items are completely useless. I do turn out to be highly adept at applying natural law. Natural law has predominance over any principles the social science comes up. By virtue of understanding natural law, I can debunk, in just a few sentences , any theory that calls for intervention by a government. My taking the time to understand the ins and outs of Keynes General Theory is about like expecting a chemistry student to completely grasp all that the alchemists of the middle ages thought they understood in efforts to turn base metals into goal. Keynesian theory clearly calls for complete objectivity. Government can only make political decisions. Keynesian techniques call for economic decisions. So, why go any further with that? Fantasy Free Economics is in a sense a lot like technical analysis. Technical analysis began with the premise that it was impossible to gain enough information studying fundamentals to gain a trading advantage. Study the behavior of investors instead. Unlike technical analysis, I don't use technical charts. What I understand are the incentives of different people and entities active in the economics arena. For example, there is no such thing as an incentive to serve with life in the aggregate. In the aggregate, only self interest applies. It is routinely assumed otherwise. That is highly unappealing. But, I am sorry. That is the way it is. I can accept that because I am genuinely in touch with reality. Step one in using Fantasy Free Economics is for me to understand just how little I really know. A highly credentialed economist may know 100 times what I do based on the standard dogma. Compare the knowledge each of us has compared to all there is to know and we both look like we know nothing at all. There is always more than we don't know than what we do know. I am humble enough to present myself on that basis. Why? That is the way it is. I am not bad at math. I have taught math. What I understand is when to use it and when to rely on something else. Math is useless in natural law so I don't use it. While others look at numbers, I am busy understanding the forces in nature that makes their numbers what they are. That gives me a clear advantage.
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gdd
gdd
10 years ago

Thank you so much, James. Appreciate your answer.
GW

gdd
gdd
10 years ago

James,
Have the mining shares gone through a bear market or is it too risky to buy them. They are beaten down…..slw aem anv abx
Thank you.
GW