Dow 5000?...Or What Happens When Government Action Fails

The early verdict from the markets on the bailout is a decided failure. Yet, the bailout is only one in a series of progressively more active steps by governments world wide that have proven completely ineffective in stemming this crisis. For months, I was critical of the Federal Reserve's drastic set of rate cuts. I was concerned when the Federal Reserve cut interest rates by a full .75% at one time. Then, I was very troubled when the Federal Reserve stepped in to take on the multi role of investment banker, rainmaker, and Federal Reserve in bailing out Bear Stearns. Then, the Federal Reserve picked and chose which companies to bail out. Then, the Treasury stepped in to buy up $750 billion worth of bad loans. When that also did nothing to calm the market, the Central Banks stepped in to produce massive rate cuts in unison. Now, the Treasury is planning on nationalizing banking. In Britain, the wheels have already been set in motion to nationalize their failing banks.

This is exactly what happens when progressively more extreme government actions continue to fail to do what they are intended to do. Governments rarely think that they are helpless to stop such things as market dynamics. For instance, in 2001-2002 Alan Greenspan continued to lower the Prime Rate lower and lower while the economy continued to sputter. He finally dropped the Prime Rate so much that the Fed Funds Rate (normally 3% lower than the Prime Rate) dropped to .75%. None of his rate cuts did anything. Once he couldn't drop rates anymore, he simply kept rates at this obscenely low level. (I believe this was the pre cursor to the mortgage crisis.) The same thing is happening now. When massive rate cuts were ineffective, the Fed made sure to save companies that would have failed without it. When that failed, the Treasury bailed out companies to the tune of $750 billion. Now that this hasn't been effective, the Treasury will simply nationalize them.

As such, when subsequent consolidations of power prove ineffective in stemming the tide of a weakening economy, what we get is the push toward socialism. The bailout was pseudo socialism, and when that failed, the government decided to remove the pseudo. We've seen this before. During the Great Depression, FDR thought that the usurption of power into the hands of the Federal Government was the way to get the country out of the depression. He nationalized banks, industry, and even parts of real estates. Our country still faces the wrath of policies started during FDR's administration. Programs like Social Security, the Federal Farm Bureau, and Fannie Mae were all created under FDR. Furthermore, the nation still faced 10% unemployment when we entered WWII. Our country only began to blossom economically when we went to war. FDR's efforts were ultimately unclear in combatting the depression, but the effects of his policies can still be felt today.

The same is true of today's action. Nationalization of industry is not something that you can easily undo. As the old saying goes "you can't get a little pregnant". As our government has been progressively more and more ineffective in stemming this financial crisis, they have also progressively usurped more and more power. As they have done that, our entire country is now one step closer to socialism. The nightmare scenario of failed government policy is here, and it happened because of a the progressively failed government policies.