Before really big, super-duper market and economic cataclysms, there are always perceptive observers who see the crash coming. From Charles Hugh Smith at oftwominds.com:
If you wanted to design a system guaranteed to collapse in a putrid heap, you’d make moral hazard ubiquitous and you’d make the system 100% dependent on a hubris-soaked faux savior.
For the past 22 years, every time the stock market whimpered, wheezed or whined, the Federal Reserve rushed to soothe the spoiled crybaby. There are two consequential results of the Fed as savior:
1. 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.
What happens when participants are confident they can’t possibly lose? They make ever-riskier and ever-larger bets. The entire nation is in the grip of a moral hazard mania, all based on the confidence that the Fed will always push every market higher–always, without fail.
2. Organic (i.e. non-manipulated) market forces have been extinguished. There is now only one consequential force, the Fed. All markets are now 100% dependent on the Fed responding to every bleat from every punter who’s recklessly risky bet is about to go bad.
The Fed is now the perfect union of quasi-religious savior and Helicopter Parent: oh dear, our little darling got high and crashed the Porsche? Quick, let’s save our precious market from any consequences!