"The only real mistake is the one from which we learn nothing"
John Powell

Hopefully, anyone who read my previous articles or may be even my biography knows that I despise all and any form of socialism, and as a rule don't put any trust in government's ability to accomplish anything productive... But the scary part now is that I am now starting to believe the recent actions taken by Federal Reserve here in the United States are starting to resemble a very unique form of socialism that could be defined as simply dangerous or even borderline reckless, and this does not bode well for the long term health of our economy...

Consistently excessive government intervention in the form of aggressive unnecessary interest rate cuts, unnecessary bailouts of "private companies" and provision of implicit government guarantee for the "riskiest" players of the whole economy (investment banks), is simply outrageous and thus can not go unpunished in the long run.

It is also becoming very clear to me that the currently widespread belief in Federal Reserve's powers to magically "guide" the economy out of recessions is quickly starting to undermine the entire fundamental basis of our market based capitalism. In a true capitalist society, market participants should be expected to only receive a return on their capital that is directly related to the level of risk they are willing to take on. Excessive risk has to be punished by failure; otherwise the whole system fundamentally breaks down- period!

I don't know how could anyone say that this is still the case today? With short term "risk free" interest rate of 2% currently firmly below the inflation level of roughly 4%- most of the nation's "worker bees" savers are being severely punished by the negative "real" returns on their hard earned money. This Fed induced redistribution of "real wealth" from the poor retirees living on fixed income, and lower income and middle class workers who keep most of their savings in money market and other low yielding investments, to the "debt hungry" spenders of all income levels is not only unfair but also dangerous. I mean, why in the world would anyone "save" the money and earn a negative "real" interest, if it is easier and more pleasant to simply borrow all you can, and then enjoy the life style you never really deserved in the first place?

Why would one try to earn a "normal" return on your money in the stock/bond market, if you could add a 20/1 leverage, put up only a modest amount of your own equity at risk and go for the "all or nothing" bet at the expense of the "sucker" savers who might not even earn enough money to provide a "zero" return when adjusted for inflation? I mean, with this kind of leverage you can make twenty bets using the same amount of equity and thus even if one or two deals blow up, you are still guaranteed to make enough money to buy a new house in Greenwich every few years or so.... The only market participants who suffer in this case are once again the "sucker" savers who unknowingly financed one's "leverage" by investing into seemingly safe "money market" funds. What a joke...

For the first time in my life, despite being a ruthless capitalist I normally am, I feel that some of the "blame the Wall Street" media whining is actually somewhat justified... In the country that prouds itself on being the "mother of true capitalism" the "always low rates" entitlement mentality of the financial services industry is quickly becoming something of an incurable decease. I am not exactly sure how did we end up here in the first place, and who exactly is to blame for this nonsense, but this dangerous game of musical chairs is starting to look awfully scary...

Continued...