warren j. dew (psychohist) wrote,
warren j. dew
psychohist

Confidence

Federal Reserve Chairman Ben Bernanke has a theory that the great depression was caused by a loss of confidence in the banking system. He's trying to prevent that now by injecting cash into the system.

The problem is that confidence isn't a concrete thing like cash. It's a psychological thing: more about trust and sense than about dollars and cents.

If you wonder what's happening to the stock market - or to your retirement plan - right now, it's directly related to lack of trust in Bernanke, and in the government in general. The stock market trusts capitalism and the private sector; the more government intervention it sees - especially with talk going around about nationalizing banks and such - the less confidence it has that stock certificates mean anything, and the lower the value it assigns to those certificates.

The answer is not, as Bernanke and Paulson and Bush and Pelosi seem to suggest, more intervention. The answer is for the government to back off and let the free market do its thing.
Tags: economy
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