Moral hazard is what central bankers call the problem — which they have created — of excessive public confidence that certain businesses are too big to fail, that the central bank will intervene to save it. This leads to excessive risk-taking by investors as well as corporate officers. They discount the possibility of bankruptcy. This concern now applies to the entire U.S. stock market. We are seeing a remarkable breakdown in a traditional relationship: forced reductions in the federal funds rate and a rising stock market. The old rule was “two cuts and a bounce” has not taken place this … Continue reading Fiat Money and Immoral Hazard