Moral Hazard Runs Wild Across The Globe

By Chris Rossini

The Federal Reserve and the U.S. military empire are America's double-edged sword. One reinforces the other. The Fed creates the money out-of-thin air to finance military adventures, and the military makes sure *wink, wink* that foreign nations continue to accumulate and use the Fed's dollars.

As a result of this nefarious arrangement, the U.S. now has both a military presence across the globe and what has become a central banker for the world. Moral hazard now runs wild across the Earth. Tremendous risks are taken on by financial institutions and governments because the consequences of those risks (when something goes wrong) can be offloaded onto either the Fed or the U.S. military.

Moral hazard in the financial arena shouldn't be hard for the average American to understand. It wasn't too long ago when the so called "too-big-to-fail" American banks were bailed out by taxpayers to the tune of almost $1 Trillion. That's moral hazard in a nutshell. 

When banks can take risks, and be bailed out by either the taxpayers or the Fed, it feeds the desire to take on greater amounts of risks. If we were able to see the Fed's books, we'd also know which foreign financial institutions and governments have been bailed out over the years as well.

It gets worse. American banks don't have to worry about depositors keeping a close eye on them either. You see, that little sign at the bank works wonders. It says that depositors are "insured" up to $250,000. So, depositors leave the banks alone and let them run amok. Can the FDIC possibly "insure" everyone should a major financial crisis occur? Of course not! But depositors don't tend to think past the words on that little sign.

Here's something to think about. If the so-called "too-big-to-fail" institutions were too-big-to-fail back in 2008, what do you think will happen the next time around? Do you think they're worried about taking crazy risks right now? They know that they have a backstop, and it's both your wallet and mine. That's the moral hazard that the Fed has produced.

What about the other blade on the double-edged sword? Where does the U.S. military's moral hazard come in? Well, the U.S. military knows that the Fed can finance any goofy military conquest that it wants. Do you recall getting a bill in the mail for the Iraq invasion? How about the disastrous invasion of Libya? Did you get an invoice? No, of course not.

You're paying for those wars, but the bill doesn't directly come to you. Instead, the Fed prints money, which in turn decreases your purchasing power of every dollar that you have. Your bills aren't rising for no reason you know. That's the round-about way that you pay for one foreign policy disaster after another. It's very sneaky and most people don't (and can't) make the connection. Government schools don't teach kids that kind of stuff.

The U.S. military also breeds moral hazard with its entangling alliances, most notably via NATO. Whenever you hear NATO, think "the U.S." Most of the alliance's money comes from you and I, and all decisions must have the blessing of the U.S. Sadly, the wise words of America's founders were not taken seriously. They warned against getting involved in entangling military alliances. That advice was tossed overboard, and now we're paying for the monstrosity known as NATO.

Well, just as how the Fed permits financial institutions to take crazy risks, so does NATO permit countries on the outskirts to do crazy things. Consider the outrageous decision of NATO-member Turkey shooting down a Russian warplane.

Dan Sanchez nails it at Antiwar.com:

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Turkey would not have done something so reckless in the first place if it was not coddled in NATO’s collective security blanket. Turkey is like the little guy in the bar who picks a fight because he knows his tough friends have “got his back,” and ends up instigating a huge brawl.

In the same way that Goldman Sachs is able to do crazy stuff because they have the Fed as a backstop, so does Turkey feel it can poke at a nuclear power like Russia. After all, NATO (i.e., the U.S. military) is there as a backstop. That's a moral hazard that can lead to nuclear war!

The Fed and the military empire are a double-edged sword. They both need each other. They both breed moral hazard, the likes of which this world has never seen.

It's not good.
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