by Charles Hugh Smith
Of Two Minds
Nobody seems to notice the ‘diminishing returns’ on Fed manipulation, oops, I mean ‘intervention’.
Perhaps it shouldn’t surprise us that everything that will eventually matter is ignored until it does matter–but by then it’s too late. Here’s a short list to start the discussion:
1. The Federal Reserve has transformed the American populace into a nation of dismayingly over-confident gamblers. I’ve been writing about moral hazard–the separation of risk from consequence–since 2011. Punters who are insulated from risk will have an insatiable appetite for risky bets, which is precisely what we see on a mass scale, as the confidence that the Fed will never let markets drop is 99.99% because the Fed has indeed reversed every decline, no matter how modest, month after month, year after year.
The Fed has perfected moral hazard: everyone from the money manager betting billions to the punters gambling their stimmy money is absolutely confident I can’t lose because the Fed will always push the market higher. Hence the advice to never sell and keep increasing the size of one’s bets because losing is transitory (heh).