Financial System led by Market or Economy?

A market economy is a system of allocating resources based only on the interaction of market resources such as supply and demand. A true market economy is free of governmental influence and other external interference.

An economy relies primarily on market forces to allocate goods and resources to determine prices. Economic activities relate to the production and distribution of goods and services, using available resources most effectively.

The term market economy is not identical to capitalism where a corporation hires workers as a labour commodity to produce material wealth and boost shareholder profits.
Capitalism is an economic and social system in which trade and industry are privately controlled for profit rather than by the government.

The market economy is different from the planned economy, where central government authorities make numerous economic decisions. Capitalism is regarded as a market economy, whereas Communism is considered a planned economy. Economists generally assume that individuals, not the government, are the best judges of what they want, judging economic valuation on individual preferences and choices.  When people express their preferences through their choices and tradeoffs, provided certain constraints as income or available time.

Economic value is measured by the maximum price someone is willing to pay for goods and services in order to obtain it.  In a market economy, money of a particular currency is commonly accepted establishing the amount of the economic value for goods and services.

But given the recent extreme intervention of the feds and central bankers in the financial system, the economic environment has drastically changed. The feds gave trillions to the bankers; the bankers cut back on consumer credit because the consumer can't keep up with the debt they have got already.
 
Conclusion: "Consumers aren't going to be able to save the world economy this time." With the result that the feds' plans are failing.

When the feds’ their correction began, the economy suffered from losses in the financial sector. Those losses led to cutbacks throughout the economy. Now these same cutbacks are leading to financial losses.

The answer to above headline question is: Initially and rightly the Economy followed the Markets, but now the Markets must follow the Economy as a result of governmental interventions.

"US consumers fall behind on loans at record pace," says a headline at Reuters. Another: “Delinquencies are going up on a wide range of household debt.”
“Debtors have never had such a hard time keeping up with payments. Credit card delinquencies, for example, are running at 6.6%.”

And no wonder: "banks get stingy on credit," reports USA Today. "Despite massive government efforts to bolster the credit market, banks are pulling back severely on card lending," begins its front-page article.

Once again, the feds' bailout plans are failing. Because "Consumers aren't going to be able to save the U.S. economy this time."

"Total U.S. retail sales have rolled back to levels we haven't seen since 2005.” Imagine if every single retail shop opened in the last three years shut down overnight. How bad that will be!
 
"A lot of people, from Wall Street to Washington, have a great deal invested in you believing we can reverse that trend. But, in actuality, the freeze in consumer spending and the consumer economy could actually take many more years to thaw."

At least, the consumer has become wiser. He's afraid of debt and has perfectly understood to where that credit road leads. What he wants is to get out of debt, to be free and safe.
 
It's the government that remains stuck in this bottomless illusion. The feds perfectly should have known that it was too much credit that got consumers into trouble. Nevertheless the feds came up with their best solution, providing them even more credit!

However instead of passing money on to customers, the banks are using the feds' free cash to build up their own reserves, raise their salaries, and pass out bonuses. Does that make sense? THINK: What else could they do with all this money?