Recently the Fed released research stating that it encouraged moral hazard and risk taking with its QE programs. Never one to fall behind, now the International Monetary Fund is in on the trick.
After promoting QE for years (see here and here), the IMF is finally coming to realize what has been apparent for years now to almost everyone who doesn’t work for the Fed or the IMF : that low interest rates encourage risky decisions.
But [the IMF] also warned that financial market indicators suggested investor bets funded with borrowed money looked “excessive” and that markets could quickly deflate if there were surprises in U.S. monetary policy or the conflicts in Ukraine and the Middle East.
As the IMF put it in its technical language, “New downside risks associated with geopolitical tensions and increasing risk taking are arising.”
It’s reassuring that after years of prodding people to borrow and spend by taking advantage of low interest rates, the IMF now wants to warn us of the risks involved. Oh well, better late then never.
(Cross posted at Mises Canada.)