The market will decide - what does this mean?

[silverfox]

We hear this all the time - "the market will decide" - it is an axiom that is rarely questioned.

I've personally never understood it. And, since Lehman Brothers, it appears most financial gurus don't have a clue either.

Let's take what's happening in the Eurozone presently and Hugenot's worries. Why is Italy next? And after Italy is destroyed - Spain, France?

Who are these faceless people making these decisions that can bring down whole governments, countries? Who elected them?

It occurs to me if Greece can have 50% of its debts written off why don't we do bit of lateral thinking here?

Instead of paying billions to bail out these countries why don't we say all credit card bills are frozen for, say, three years, mortgage interest payments frozen for three years and so on.

This potentially frees up billions of pounds that can be spent in the economy guaranteeing jobs and kick starting the economy - so what if Visa take a hit for example - at the moment companies such as Visa with interest rates of around 19% are enslaving people and hampering any recovery.

Am I being totally naive?

[Huguenot]

I guess the market is a loose term for anyone involved in a transaction. It's basically a statement that empowers the population at the same time as abdicating responsibility for social consequences.

Whilst I'm not totalitarian, I simply don't trust markets - particularly those where there are too few buyers or sellers, and potential for cartel behaviour.

People in general don't have enough information or experience to come to appropriate solutions, and they don't behave rationally. We vote for people who promise things that cannot be delivered, deny obvious problems to lessen our guilt, and jump off proverbial cliffs just to be part of the gang.

[Jeremy]

Governments don't trust "the market" either, which is why we don't have a pure market economy.

Silverfox, I'm afraid you are being rather naive... allowing people not to pay off their debts would cause havoc in the economy which would far outweigh any peripheral release of cash.

[HAL9000]

Free markets usually provide an efficient 'price discovery' mechanism. During periods of QE and/or massive government and regulatory intervention, those markets can no longer be considered 'free'. Hence the wild volatility and whipsawing gyrations we are presently experiencing. Today's markets are not rational. Most naked traders and speculators are being slaughtered out there at the moment. Interesting times.

[StraferJack]

what about those periods immediately prior to the periods of QE/government intervention then?

All stable and reliable there are they? I think the volatility came first THEN the government intervention, no?

[HAL9000]

I think the cause of the initial volatility was a systemic problem with our economic model, not the free market system itself.

[Huguenot]

I doubt that!

Adam Smith's free market invisible hand - that results in the selfish actions of an individual driving the general good - is dependent upon the assumption that an individual can and will act in his own best interests.

However, it's not part of human nature to act so independently. Humans act irrationally, are poorly informed with limited analytical capacity, and tend toward mob behaviour based on emotion rather the 'supply and demand' economics.

The housing disaster was empowered by bezerk humans engorging themselves in in an unregulated market. That's the free market for you.

[Magpie]

Interest rates kept at low levels by central banks and governments had no small role to play in housing boom

[StraferJack]

It needs to be said that consumers have to hold their hands up for the part they played in this - they did want all of those things and gorged themselves when available

But as I've said before - that always has been the case. It's why certain institutions were given the keys to the cake-tin. It was their job to say no. Instead they abdicated responsibility because it made more money to say yes

So we consumers - never trust us. We are two-face liers. Always have been and always will be. But when we collectively put mechanisms in place they should be accountable

(no good a junkie giving his money to a dealer to avoid having money for drugs)

[HAL9000]

Actually, the only markets that 'collapsed' during the Great Financial Crisis of 2008 were those dealing in unregulated, private, inter-bank and OTC debt-based securities.

The problem there was no transparent price discovery mechanism ? there were no true free market forces in play.

[HAL9000]

Huguenot Wrote:

-------------------------------------------------------

> The housing disaster was empowered by bezerk

> humans engorging themselves in in an unregulated

> market. That's the free market for you.

There is a huge difference between a market governed by true market forces and a market that is an unregulated free-for-all.

Just to amplify what I wrote in an earlier post, after 911, US house prices were no longer subject to free market forces because interest rates were set by government policy regardless of supply and demand considerations.

So, the US housing market was not a true free market in the run up to the GFC of 2008.

In that sense, 911 could be identified as the principal catalyst that precipitated our present financial predicament.

[Huguenot]

"There is a huge difference between a market governed by true market forces and a market that is an unregulated free-for-all."

I thought that was Adam Smith's definition?

Take the rest of the points though.

[HAL9000]

I thought that was Adam Smith's definition?

Yes, but...you were describing an asset price bubble.

According to Smith, free market forces are socially beneficial only when the necessary conditions include appropriate incentives, effective competition, safeguards against exploitation, regulation, honest participants, protection against malfeasance and so on.

I not sure there is anything in Smith's Wealth of Nations that presages recent economic developments, though.

[????]

Of course market forces weren't allowed to do their thang in 2008, we all stepped in to save some banks

[Undisputedtruth]

'The market will decide' is just a tool similar to consensus. The main problem is that some people have more money than others.

Anyway, I view the term 'the market will decide' as total bullsh!t as I think many of the commentators just makes up the commentary on the spot. Just like Hugo!

[Huguenot]

Since a commentary is a view on unfolding events, by definition it has to be created 'on the spot'.

If you can't express a view without making an unprompted personal attack on someone who disagrees with you then that's called 'inadequate'.

If you are rolling out concepts that you've established before irrespective of, and unaffected by current events then that's called 'dogma'.

If you are repeating foolish ideas that talk about the end of society and apocalyptic scenarios then that's called 'puerile onanism'.

I'll leave it to readers to decide if they've seen any inadequate dogmatic puerile onanism on the forum.

[????]

Did you type that out with a straight face?

[Huguenot]

You don't see the irony in that?