At the crossroads between continued economic ruin and recovery, the United States Federal Reserve is attempting to balance a very delicate scale. In an effort to reanimate a struggling American economy, the Federal Reserve has aggressively pursued a policy of smothering capitalism in an effort to save it.
1. The Fed’s Iron Grip on Capitalism
Throughout its history, the Federal Reserve (the Fed) has had an unwavering influence on the capitalist system in the United States. It has been known to have an iron grip when it comes to regulating economic activity within the country.
Fed actions have a widespread effect on how businesses, consumers and investors conduct their financial affairs. For example, the Fed can decide to raise or lower interest rates which, in turn, impacts how those involved in the economic framework can borrow or lend money, or how much money they are able to access. Additionally, the Fed can use its expansive econometric tools to enact or suspend other types of regulations, such as those related to fiscal stimulus packages, inflation rates, and even the wider job market.
The Fed’s power is far-reaching, and the following are the most pertinent effects of its grip on our capitalist system:
- It increases or decreases confidence on the stock market: Investing decisions made by money managers and institutional investors can be heavily influenced by the decisions of the Federal Reserve.
- It affects the cost of credit: The Fed can directly adjust the cost, availability and terms of credit, impacting businesses and consumers’ spending and saving decisions.
- It updates US economic policies: The Federal Reserve is a key component in making the United States economy more innovative, dynamic and resilient by creating policies to address contemporary economic challenges.
2. The Pro’s and Con’s of a Government Takeover
- A government takeover offers an organized system to manage the company, which helps to limit the company’s risk and provide security for those involved.
- It can also increase the efficiency of production, because the government is able to offer tax breaks and special incentives to increase profitability.
- The takeover gives the government control over decisions that affect the public, such as pricing and environmental policies.
- Because the government is involved, the decisions made about the company are often based on political factors, which can result in decisions not always being in the best interests of the company.
- The government is also more likely to interfere with management decisions, which can cause delays in the implementation of new projects and initiatives.
- A government takeover also brings with it more bureaucracy and paperwork, which can be both time-consuming and expensive to manage.
3. Saving the Free Market from Itself
Capitalism, a cornerstone of our free market economy, can both elevate and upend. When it works, it yields wealth and success. Yet, when it goes awry, it can leave places, people and economies devastated.
The concept of a “free market” often suggests that markets should act without any kind of regulatory intervention. But, in reality, for markets to work without episodes of fear and subsequent market crashes, there needs to be some intervention. The following points should be taken into consideration for helping ensure the health and success of the free market:
- The need for fair taxation — Taxes should be applied equally and be allocated to reinvesting in infrastructure and communities.
- Realistic business investment incentives — Business owners shouldn’t be incentivised to invest into short-term fads that are destined to burn out.
- Having a balance between too much and not enough government intervention — Too much government authority could stifle innovation, while too little could allow exploitative practices to take place.
It is also important that responsible investors further help sustain the success of a free market. This could include things such as investing ethically, putting money into funds that focus on diversifying the global economy, and perhaps most importantly, not playing into the “panic sell” mentality that can often complicate market downturns. By helping ensure the health and well-being of the free market, it’s possible to enjoy its many economic and social benefits in a responsible way.
4. What’s Next for the US Economy?
The US economy is in a unique position with the current turmoil shaking up the markets. We can only speculate what will happen in the next few months and years, but here are some of the potential factors that could shape the future of the US economy.
- Recession Risk: The uncertainty of a full-blown recession in the US economy has been growing by the day and is a significant factor influencing the outlook of the US economy.
- Global Economy: The US economic landscape is intertwined with the global economy and any economic disruptions abroad could have a spillover effect on the US.
- Labor Market Reform: The US labor market has some of the most regressive laws among advanced economies, with several outdated laws limiting the effectiveness of the labor force.
- Technological Development: Technology is rapidly revolutionizing the way we do business. The ability to leverage technology to drive a more efficient and productive economy is yet another factor in determining how the US economy will fare in the future.
These are all potential factors that could influence the future of the US economy. As the days pass, the economic landscape of the US is sure to change significantly, with different forces coming into play and driving the overall trajectory of the economy.
It could be argued that in this attempt to rescue the economy from a potential collapse, the Fed has inadvertently undermined the spirit of capitalism. Only time will tell if this strategy of putting the brakes on to avert disaster is a success, or if a more radical act of capitalism is needed to restore economic stability.