Every time the government intervenes with market forces, there is a huge adverse impact on business, consumers, workers and the entire economy. Often the ripple effect is felt across the globe.

1. The More Governments Meddle,
the More Markets Fumble
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It influences markets through:
• Regulations
• Taxation
• Subsidies
Government is a major player in the markets
Government & Markets

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One of the most powerful weapon in the
government's arsenal is monetary policy.
This influences the movement of capital:
• between investments
• between countries
• between currencies
Government’s Biggest Weapon

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Governments use interest rates to target inflation.
Central bank hikes interest rates currency may appreciate
Cuts in benchmark interest rates currency may decline
Monetary Policy and Interest Rates
US Federal Reserve hiked interest rates 4 times in 2018
US dollar spiked toward a 16-month high against the euro

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Impact of Rising US Dollar
Commodities are
priced in US dollars
Stronger greenback means
lower overseas demand for
commodities
Impact on
manufacturing
companies globally
Stronger dollar makes it
cheaper for US
companies to invest
overseas
Rise in cross-border M&A
by US companies
Currency gyrations
Uncertainties in
international trade

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Impact of Rising US Dollar on Emerging Economies
Stronger US
dollar means US
exports become
more expensive
Most US
exports are
pharma and
tech
Major
implications
for emerging
economies

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Impact of Rising US Dollar on Emerging Economies
Stronger greenback causes
emerging market
currencies to plunge
Deep impact on their
current account
deficits and
economic prospects
Can create a
downward spiral
leading to
recession

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US China Trade War
World's two largest
economies imposed
tariffs on good worth
hundreds of billions
of dollars.

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US
Tariffs on
Chinese
Goods Worth
How the US-China Trade War Escalated
China
Tariffs on US
Goods Worth
$34bn
July 2018
$16
bn
$200bn
at 10%
$34bn
$16
bn
$60bn
at 10%
August September
$200bn
at 10%
$60bn
at 10%
May-June 2019
December 2018
to March 2019
-----------
US & China
pause new
tariffs and begin
negotiations

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Impact of Trade War on US and China
Increased
input costs
Businesses
suffer
Higher cost
of goods
Consumers
suffer
Sharp decline
in real exports
Workers
suffer
Weakening of
economic growth
Everyone
suffers

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Impact of US China Trade War on Global Economy
Lower
international
trade
Every country is
adversely impacted
Trading Partners of
China and US suffer
Great uncertainty
in global financial
markets
Investors and business
are impacted
Low
investor
confidence
Restrained
Fixed investment
Consumers and
workers suffer
Growth curtailed
and jobs lost

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Brexit: UK Bids Farewell to EU
June 23, 2016
UK votes in favor of
breaking away from
the European Union
Final date for Brexit,
likely without a deal
Oct 31, 2019

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Impact of No-Deal Brexit on the UK Economy
No-deal
Brexit
End of Britain's
tariff-free trade status
with EU member nations
Tariffs imposed on
British imports
Consumers in the
UK suffer
Tariffs
imposed on
British exports
Consumers in importing
countries suffer

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Impact of No-Deal Brexit on the UK Economy
Goods requiring
customs clearance
Delays
Shortages
UK companies
cannot bid on
public contracts in
any EU country
Economic
slowdown
Expected loss of
5,000 jobs
Real estate collapse
a possibility

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Impact of Brexit on Global Economy
Turbulent
currency
markets
Pound and Euro
may weaken against
the US dollar
Severe consequences
of rise in US dollar
US companies have
invested ~$600
billion in UK
Will suffer with
end of free
trade with EU

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Cryptocurrencies: Defying Government Intervention
• Decentralized digital currencies based on
peer-to-peer network
• Not issued by any central bank
• Is not issued by any government
• Transactions not required to go through any
financial institution
• Rise in popularity because of direct, cheap and
fast transactions
Cryptocurrencies:

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Governments are Afraid of Cryptocurrencies
Why?
Governments
control fiat
currencies
Issue and
destroy
money supply
Dictate how fiat
currencies are
transferred
Tracks
currency
movement
Collects
taxes
Dictates who
profits from that
movement
But governments cannot do
this with crypto currencies
So petrified of these
decentralized,
digital currencies

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Cryptocurrencies: Impact of Government Bans
• Curb individual choice
• Stop innovation
• Stop lowering transaction costs
• Make crypto markets more volatile
• Hurt crypto market liquidity

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Government Intervention will
Make Markets Turbulent
Hurt Economic Growth

20. Read More About Free Markets
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Rakesh Wadhawa