Neel Kashkari, in a recent CNBC interview, said, “I don’t see any moral hazard here when asked if the Fed’s massive liquidity injections have blown a bubble.

What exactly is the definition of “moral hazard.”

Noun – ECONOMICS
The lack of incentive to guard against risk where one is protected from its consequences, e.g., by insurance.

Take a look at the following chart.

moral hazard, Neel Kashkari Is The Definition Of “Moral Hazard”

The Zombie Apocolypse

Zombie companies depend on a speculative investment climate for bond issuance for their survival. As discussed in “Recessions Are A Good Thing:”

“‘Zombies’ are firms whose debt servicing costs are higher than their profits but are kept alive by relentless borrowing.

Such is a macroeconomic problem. Zombie firms are less productive, and their existence lowers investment in, and employment at, more productive firms. In short, a side effect of central banks keeping rates low for a long time is it keeps unproductive firms alive. Ultimately, that lowers the long-run growth rate of the economy.” – Axios

moral hazard, Neel Kashkari Is The Definition Of “Moral Hazard”

Such also explains why there are currently record levels of “junk bond” issuance in the market.

“Issuance in 2020 through August was $291.9 billion, up 71% year over year. Credit strategists at BofA Global Research now project a full-year primary volume of $375 billion. Such would shatter the current record total of $344.8 billion in 2012, according to LCD.”

moral hazard, Neel Kashkari Is The Definition Of “Moral Hazard”