US – swing towards state capitalism?

I am foreseeing that Barack Obama administration is likely to substantially increase the government’s share of GDP, taking the US economic picture closer to that of Europe.

In words of George Soros…`having gone too far in deregulating - which contributed to the current crisis - we must resist the temptation to go too far in the opposite direction. While markets are imperfect, regulators are even more so. Not only are they human, they are also bureaucratic and subject to political influences, therefore regulations should be kept to a minimum’

Obama now wants to make the Fed an ‘uber-regulator’ in order to head off any future systemic risks. Throughout the 1990s and early 2000s, Fed worship was widespread in Washington and the Treasury Secretary Geithner has put a lot of faith in the Federal Reserve’s ability to spot risk and exercise its power to prevent the next crisis.

This could be a potentially dangerous drift toward American state capitalism – a threat to the economy’s free market foundation. Allowing the pendulum to swing too far in the direction of government control subjects the democratic capitalism model to attack by socialist influences. And that assault is already underway.

My view is that by keeping the old guard on duty and only giving them new binocular, we may well see the next set of failures on the horizon – but will be powerless to stop them.