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Moral hazard, Easy money and cheap credit have never led to a happy ending

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Moral hazard, Easy money and cheap credit have never led to a happy ending
Pezibear / Pixabay

Moral hazard, easy money and cheap credit have never produced good results. History is littered with examples of financial disaster brought about by monetary manipulation originating in central banks and then spreading to other parts of the system. One would think that the 2007/08 credit crisis, whose effects have not quite withered away, would teach politicians, central bankers, corporations and consumers something about the causes of credit crunches and meltdowns.

Think again. The world’s four largest central banks have pumped more than $9 trillion into the system since the last financial crisis and brought about a world of absurdly low and even negative interest rates. The incentives generated by these policies and their effects — moral hazard, easy money, cheap credit — will lead, at some point, to the bursting of new bubbles.

Which ones? It’s never easy to say, but the United States has seen an unhealthy growth of subprime credit, and credit in general, in three markets — credit cards, auto loans and student loans. It would not be a surprise if one of these brought about the next credit crunch.