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» Articles - Is the capitalist model still viable?
How viable is the capitalist model? What will happen in the future?
With the current turmoil in the capital markets it is amazing how many captains of industry in Australia and off-shore are calling for governments' intervention to minimize the capital losses that have been incurred by investors. Why is it that when making money, they consider the Government and the public sector to be irrelevant. But as soon as they start losing money, they run to the Government with requests for support?
Further, it is even more concerning that Central Banks such as the US Federal Reserve keep dropping rates to effectively “prop-up” the equity markets despite knowing that the market created the mess themselves through hybrid instruments and financing vehicles that were not sustainable right from the beginning. For example: aggressive margin lending, sub-prime mortgages and lenient lending guidelines. It will be interesting to see how the Reserve Bank of Australia reacts under the weight of local inflation pressure vis-à-vis the World's biggest ( US ) economy's recession?
In the most recent past, turbulence in the capital markets has been experienced in the 1970s, 1980s, in the 1990s and now.
Does this mean that the capitalist model of “free” markets is no longer sustainable? Or is it more to do with the increasing speed with which information becomes available and on which investors act much more quickly than in the past? Or is it something else completely different? For example: the polarity of poverty in some parts of the world compared to material excesses in other parts of the world?
The answer lies in a combination of market and government forces. For example: issuance offinancial market instruments that not many investors understand, the global nature of capital movements, the speed of information flows, greed and selective intervention by Governments and Central Banks in what is meant to be a free market. These actions will not change in the short-term and so, in your actions you will need to protect your own future.
To minimize the negative impact on your own financial position in the future, you should consider the following guidelines:
- Don't borrow what you cannot repay.
- Understand the companies in which you buy shares. Monitor management movement(s) and act accordingly.
- Network with your peers and share research.
- Cut any losses.
Vas Banschikov
www.SuperInvestor.com.au
Now that you have read this, what do you think? Do you have other ideas? Please share you views with other members (eg by blog or discussion form) and/or request professional member(s) to contact you directly.
