1 Answer | Add Yours
This is a great question and one that is completely appropriate for our economic climate. There are many theories out there. So, this answer will not be able to cover everything. With this stated, there are two general approaches to the economy.
First, there are those who believe that we need to intervene to create a healthy market. The Federal Reverse is a perfect example of this approach when the bailed out many banks and other industries. In short, they intervened and helped to prop up the markets through the printing of money. Today we can say that markets are up through intervention, primarily through the printing of money and secondarily through the artificially low interest rates. What makes this situation unique is that other nations in the world are doing the same thing.
Second, there are those who believe that the best thing for the market is to leave it alone. They believe the market will correct itself. And more importantly, bad companies should go bankrupt. They state that this has happened in the past and it is good for the markets. In other words, bad companies will go bankrupt and good companies will buy up the parts and create new companies, which will be more profitable.
In my opinion, the truth is somewhere in the middle, but I lean more towards the second approach. Intervention is generally not good. We are essentially awarding bad decisions and proping up incompetent people, who do much of the same. If banks were too big to fail and this was a bad thing, through intervention they are now bigger. This might border on insanity.
We’ve answered 319,811 questions. We can answer yours, too.Ask a question