Arctic Goldfinger

The term “moral hazard” is familiar to a financial junkie, but its appearance in the mainstream press is new. For those not familiar with it, it means the risk you take, as a monetary authority (like the Federal Reserve), in encouraging risky behavior by bailing out risk takers who find themselves in trouble. The Fed has done it time and time again, but this is the first time it has been talked about very much. The reason it is being talked about right now, of course, is the “housing bubble” which has started to pop and take down a lot of lenders and speculators with it. Many innocent people are getting hurt, but many lenders and speculators, who thought the law of gravity had been repealed, are getting what they deserve.

I have the sense that it may be too late no matter what. This is a case, as the saying goes, of generals preparing to fight the last war. There is great pressure on the Fed to lower interest rates and soften the blow of the housing crisis, and that is what has triggered all the talk about moral hazard. In my opinion, it may not matter what the Fed does. The monetary house of cards we have constructed since 1971 is moving toward collapse because, as people will soon discover, the money in their wallets is turning to garbage right before their eyes and there is little they can about it. Except buy gold.