I read the following in the Financial Times about a month ago (it was published in the paper in August this year):
If you diagnosed the horrific financial crisis at the end of 2008 and early 2009 as a temporary depression, the prescription was clear: vast amounts of antidepressants in the form of the biggest fiscal and monetary stimulus the world has seen. Eventually the patient would feel cheerier and the world a brighter place. In time, it could be weaned off the medicine.
If, in contrast, you thought growth had been powered by an unsustainable rise in debt, then a different metaphor for the stimulus seems apposite: giving methadone to a heroin addict. The effects of the medication would be transitory and the patient would at some point have to go cold turkey.
We can reasonably say which metaphor is best … Had the stimulus worked like anti-depressants, you would by now have expected short rates, rate expectations and bond yields to have risen sharply … This brings us to what the Fed did not do last week. Investors had hoped for more quantitative easing to loosen monetary policy further. That they thought it necessary speaks volumes about how much the patient had relapsed.
The article raises the the question about whether we have a debt crisis or a debt addiction. A debt crisis might allow for us stoking up the economy and working our way out of the crisis but if we are addicted to debt then we need cold turkey and then there is likely to be a lot more pain to come.
It is not only an interesting point but one that is relevant to people of faith. How do we view wealth? There has been an awful lot of barbs this week against the fact that our overseas aid budget is rising, although the amounts are small compared to the overall budget set by the government. The aid is also aimed at some of the poorest people on the planet. Is that because we are addicted to debt and the idea that we might have to make do with less is the response of an addict? Is this our response because, like an addict, we lack sympathy for others?
Cold turkey or anti-depressants. Not sure I like my options!
You can read the full article here:
You can sign up for free at the FT website which allows you to read a certain number of articles a month.
Oh and by the way the author was my brother.