The Fed Pumps More Air Into The U.S. Stock Bubble

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Federal Reserve
Close up of Federal Reserve Building in Washington DC

Something is gotta be said about the moral hazards implicit in U.S. Federal Reserve policy. If you make money cheap nine times out of ten, people will be more irresponsible with that cheap money than they would with expensive money. Why? It is human nature. If there is a strong consequence or cost for you being irresponsible you would take better bets. You would not engage in less risky behavior. Unfortunately, with the recent Fed reports that the majority of its governors is leaning towards keeping U.S. Federal Reserve interest rates at zero amounts to nothing more than putting more air in the currently raging U.S. stock bubble.

The whole idea of keeping rates at zero is to stimulate economic activity. When rates are near zero this impacts mortgage rates, this impacts corporate borrowing, so on and so forth. The hope is that a lot of this borrowing impacts average mainstream Americans living on Main Street. Unfortunately, this is not the case. Whether we are talking about quantitative easing or lowering interest rates, it all amounts to stimulus. Stimulus money is essentially free money that banks and speculators use to run up the value of investments that should not be valued as much.

There are lots of moral hazards at play, and I suspect that when the global economy crashes due to such reckless physical policies, government financial policy planners will think twice about stimulus tools. You have to understand why the Federal Reserve acts this way. It feels that the number of tricks it has up its sleeves has disappeared after the Great Financial Crash of 2008. This is why it has gotten bolder with its economic rescue packages.

This is slow financial suicide.

There is really no other way to describe it.

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