Fed Lowers Rates…So Much For Natural Selection

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The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent. Now if that seems low to you that would be because it is. If that seems “too low” to you, you would once again be right…it is.

Basically, we are running out of room to lower rates. We are continuing to try and find a quick fix to what needs to be a correction.

Capitalism is like survival of the fittest. Or, at the very least natural selection. Weak animals disappear, stronger ones survive. Companies are the same way. Those that are well run survive; those that fall apart are supposed to fail (and let the next company step up to the plate). 

That is the way it has always been…until now. 

Now we are trying to manipulate a free market. We want the market to function by itself (free trade, etc) but now we are trying to “help” the ones that should fail. So what happens when you do this?

1. The “saved” company that should have failed will most likely still fail – you will have just wasted your money. Unless the company undergoes radical changes (which is typically unlikely) it will not survive – it is merely on life support for a while. Unfortunately, those funds supplying that life support come at an expensive price to the taxpayers. 

2. The “next in line” companies do not get their shot. Matter of fact, since they are not being helped in a newly manipulated market, they may fail. 

I still believe that we should not have done the bailouts. I think it would have been a difficult and painful decision to not bailout some companies, but it is going to hurt even more when we can’t keep feeding them money and we are a trillion dollars into it. 

If you truly believe in capitalism, you have to let it correct itself. 

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