If that problem is addiction, overcoming it is easier said than done. Whether it is gambling, alcohol, shopping or drugs, taking away the thing they crave leads to severe withdrawal symptoms, and it is far easier (and more pleasurable) to carry on doing what they know they shouldn’t than it is to face the inevitable, painful “come down”.
And so it is, my friends, that today we find ourselves living in a world whose entire economic system is addicted to the fiscal equivalent of partying – huge levels of stimulus. Keeping interest rates low to keep us all spending, quantitative easing, buying and selling government bonds are all aimed at keeping the whole financial system stimulated.
The world is being fed a cocktail of anti-depressants (to keep us spaced out and happy), mood enhancing drugs (to keep us distracted from reality), steroids (to convince us that bulk is better than health) and the occasional Viagra (to keep us interested and ready for action). Eventually we must stop and ask ourselves: How long can this continue?
But partying is much more fun than pain, dear readers. Even the subtle word choice, hinting that the US Federal Reserve – the Fed – will begin “tapering”, is enough to cause convulsions and cold sweats, sending the capital markets spiraling out of control.
The Fed has openly admitted that, should it suddenly put away the oversized “monetary injection needle”, then – like a drug addict locked in his cell and deprived of his “candy” – the financial system would be forced to go “cold turkey”.
But surely the removal of stimulus would clean up the system, right? We could go through a short, sharp period of pain, forced to sweat it out, and emerge cured of our addiction to debt. That would do the trick, would it not?
Of course not. For politicians, forcing the financial system to go “cold turkey” would be the surest form of political suicide, as the voters would blame them for the recession which would inevitably follow.
And what of the banks? If governments turned off their life support now, the banking system might implode, bringing down entire economies with it.
So we must accept that the most sensible cure is going to be the gradual replacement of our stimulus with increasingly weaker drugs, for a protracted, albeit more painstaking detoxification.
This process would take many years before the patient is able to survive without even the smallest of fixes. Basically, the financial markets need to be put on methadone.
The entire financial system is riding high on stimulus and money printing. More and more stimulus will not keep the stock markets at these levels forever, and at some stage it will cause a completely new set of problems.
Some central banks may have to continue printing money just to pay the bills, never mind keeping the party in full swing.
But history has taught us that every credit boom has a shelf life. There comes a time when every party must end: on go the lights, off goes the music, and the guests are asked to leave.
Once the market “calls time” on our financial rave, that is when the fundamentals take over, the wisdom of the intoxicating stimulus strategy gets called into question, and the markets and economy finally tip over to the downside (just as they did with “Greenspan’s Put” in the late ’90s).
Our stimulus high must eventually come to an end, dear readers, and those who emerge from the withdrawal period in the best shape will be those who recognise the early warning signs, and ensure that their portfolios are well-positioned to survive the shock-effect when the global economy is eventually forced into rehab.
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