Last updated on April 16, 2020
The interventions of the US Fed in the face of the COVID-19 crisis are described by some experts as the end of free markets and capitalism as we have known it until now. The interventions by the Fed and other central banks in other countries distort prices in the market. Governments intervene by (knowingly and willfully) override basic free-market mechanisms such as pricing by offering unlimited financial resources. But capitalism and a free market economy cannot function without scarcity of goods or money. Most central banks have cut rates to zero and started buying trillions of assets. This COVID-19 induced interventionism may pave the way toward a crypto-based cybereconomy.
The Death of Capitalism
As a result of this new interventionism, traders and investors are desperately searching for a new economic order and markets that are free of interference.
There is no such thing as a free market anymore. n a matter of weeks, policymakers have become a backstop for private-sector credit markets. At the extreme, central banks could become permanent command economy agents administering equity and credit prices, aggressively subduing financial shocks. It would be a bi-polar world of financial repression with high real economy volatility but very low financial volatility. A ‘zombie’ market.George Saravelos, Global Head of Foreign Exchange Research at Deutsche Bank in The end of the free market: impact on currencies and beyond
Read Billy Bambrough in Forbes: Donald Trump And The Fed Have ‘Ended The Free Market’
What we’re witnessing here is nothing less than the death of capitalism and birth of something new. It’s quite fascinating, really.Mati Greenspan, founder of Quantum Economics.
It may be that these are exaggerated statements. Even the father of the free market economy, Adam Smith, assigned the state a night watchman obligation. One could, therefore, see the current governmental interventions merely as a “correction” or temporarily exercised “night watchman duty” in the very best interest of the common good. In any case, further development seems necessary.
The Crypto Escape
According to Glen Goodman, a financial author, and trading veteran, there is no doubt stock markets and forex markets are being hugely manipulated by central bankers. Cryptocurrency markets would be less affected by this governmental interventionism. This could end up rather well for crypto, as traditional traders would “start looking more fondly at one of the last refuges of free trading in the world.“
The COVID 19 crisis has shown the vulnerability of the “old” order. Climate change, refugee crises but also the growing problem of kleptocracies and money-laundering had already shown the limits. It is time to rethink the possibilities of cryptocurrencies and blockchains with a view to developing a more sustainable and fairer cybereconomy. More state and broken currency systems are certainly not the way to a good future.