That is especially true now, as the core of capitalism is questioned, poked, prodded and altered.

From USA Today:

"Q: With the government essentially nationalizing banks and bailing out private enterprise (auto companies), is investing in capitalism no longer a good idea?

A: When the Berlin Wall fell, more than concrete came crashing down. Faith in centrally planned economies came down with it.

Now, the U.S. is having a bit of a Berlin Wall moment. The near-collapse of the nation's financial system has revealed some major problems with capitalism, long heralded as the most efficient in the world. With the government bailing out banks, insurers and mortgage companies, the free market has suffered a major black eye.

Historians will debate for decades what happened to bring U.S.-style capitalism to its knees. I'll leave that discussion to others.

But you're right to worry about what the struggling nature of capitalism means for you and your portfolio. After all, capitalism drives the formation of businesses and channels money to profitable enterprises. You, as an investor, are getting paid for taking the risk of providing your money to companies. If you've lost faith in capitalism, that is a reasonable reason to give up on stocks. It's not unreasonable to say the government's greater presence in business will squeeze profit for commercial enterprises in some industries.

With that said, though, the U.S. isn't the U.S.S.R. While the government is clearly becoming more important in business, especially in the financial and auto sectors, there's still room for free-market competition, says Mark Hebner of Index Funds Advisors.

New companies, even banks, are free to compete against the large banks the government is investing in. "The government is not trying to enforce a monopoly," Hebner says. "That's where you get into trouble."

It's similar to how FedEx and UPS sprung up and have competed vigorously and effectively against the U.S. Postal Service. Entrepreneurs will need to consider how their business intersects with government programs and be careful to provide better service or a unique product.

For instance, executives at banks that took government money might bristle at the pay caps government insists on. If so, they're free to leave and compete with the banks they left. Also, so far, there are many industries that aren't likely to see a greater government presence.

Finally, remember that the nature of capitalism does cause problems from time to time. There's a constant tug of war between no-holds-barred capitalism and socialism in this country. That's been the case for a long time. And while it's unclear if the government's moves now will fix our economic problems, taxpayers have the ultimate power. If things don't work, taxpayers can replace their elected officials and try something else.

That's why investors, if they've invested in stocks, should be prepared to hold on for long periods, Hebner says. That is especially true now, as the core of capitalism is questioned, poked, prodded and altered.

"If you have an equity portfolio, plan to sit tight, as many presidents work through these issues," Hebner says.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns."

Me:

DonthelibertDem (0 friends, send message) wrote: <1m>

While I agree that we will have a market economy, the government could get a lot more intrusive. One thing that could make that likelier is for the government bailouts to lose hundreds of billions of dollars and be seen as a blatant example of crony capitalism. That possibility is worse to me than investors taking a hit now.

"We can't predict how deep the recession will be, or how long it will last, because it depends on psychology. "

Another good post from the Guardian:

"Bill Emmott

• 
  
• The Guardian, Saturday 3 January 2009
• Article history

"What, pray, is all the fuss about?" asked a sage columnist in these pages on the first anniversary of the credit crunch ("Crisis, what crisis?", 12 August). In response to claims that this was a great crisis of capitalism he even deployed the word "phooey". That sage columnist was of course yours truly; it is safe to say that article will not be pasted into my scrapbook titled "Most Prescient Pieces".

My argument was, of course, correct in so far as it looked in the rear-view mirror rather than at the road ahead. The striking thing about the first year of the crunch, in Britain and globally, was how little impact it had on the wider economy beyond the banks, the City and Wall Street( TRUE ).

And any impact that has yet been seen does not make the situation worse than the recession of the early 90s, or especially the early 80s, when unemployment was nearly double today's level. Still, it is no longer possible to be as sanguine as I was in August. We are still far from a "worst since the 30s" situation, but there is no doubt that in the last four months all developed economies, and many developing ones, have frozen up. How bad might it get? We don't know, because we can't know.( TRUE )

It is worth dwelling for a moment (as I have for many moments, especially since mid-September) on why I was proved so wrong. There are, I think, two reasons beyond idiocy or complacency.

First, I may have spent too much time thinking about Japan. It really did have the rich world's worst financial crisis since 1929, when after 1990 its stockmarket fell by 75% and property prices by 70%. But it never had a severe recession: more a slow squeeze that ended, from 1997 onwards, in deflationary stagnation. A slump was prevented by a huge Keynesian public spending programme; meltdown was prevented by using public funds to rescue banks.

The collapse of our financial pyramid scheme could be absorbed, I thought, by learning from Japan's example and improving on it. That is exactly what Gordon "saviour of the world" Brown did by recapitalising Britain's banks 14 months into the crisis, rather than waiting eight years, as Japan had; and it is reflected in the fiscal expansion announced in Alistair Darling's pre-budget report in November and the huge spending programme being prepared by the US president-elect.

However, our drama now feels worse than Japan's because it is international. Japan's economy was propped up by healthy global growth, whereas now we are all slowing or receding together. It is also worse because of the second factor that I misjudged in August: psychology( THE KEY TO THE WHOLE CRISIS ).

The position I took was, in effect, an attempt to argue that we risked talking ourselves into recession, through media scaremongering, and remarks such as Darling's warning, in his Guardian interview of 29 August, that Britain faced the worst economic times for 60 years, with more "profound and long-lasting" effects than people were expecting. No doubt he now thinks he has been proved correct, while I still hope that he won't be, and feel he may have contributed to the panic( TRUE. BUT IT'S UNDERSTANDABLE. ) - even though it would be implausible to argue that he caused it.

Now fear has taken over( THE FEAR AND AVERSION TO RISK ). Companies, households and banks have decided that cash must be king, to be in debt is to risk death, and new commitments are best avoided. Individually, this is rational. Collectively, it is disastrous( TRUE ). Or, to avoid being a scaremonger, it brings about( I AGREE ) the thing we are afraid of: a nasty recession.

We can't predict how deep the recession will be, or how long it will last, because it depends on psychology( I AGREE ). Economics is not about models and mathematics, it is about behaviour( THAT IS THE WHOLE POINT OF A HUMAN AGENCY EXPLANATION ): our reactions to opportunities, risks and fears.

Brown and Darling are right to be trying to counter that deflationary psychology( TO TRY AND LESSEN THE AVERSION AND FEAR OF RISK ) by throwing away the old fiscal rules, cutting VAT and expanding public borrowing. Like in Japan, this will help to mitigate the slump. But whether it can end the slump will depend on companies, households and banks that hold cash being convinced( YES ) that it is time to start spending again - because they have become sufficiently less afraid of an apocalypse, and sufficiently convinced that opportunities to invest, buy and lend have become sufficiently attractive( YES ).

Meanwhile, note, this is not - yet - a true "crisis of capitalism"( I AGREE ). That would arise if confidence never seems likely to return, if unemployment has soared( A TRUE DISASTER ) and if hope seems truly to have been destroyed. It cannot be ruled out( I AGREE ). But let us, as the future US president said in his book, have the audacity to hope that it won't happen, and the sense not to announce it until and unless it does.

• Bill Emmott is a former editor of the Economist and author of Rivals - How the Power Struggle between China, India and Japan will Shape our Next Decade"

I agree with this post and its emphasis.