One of my friends, whom has little time for following the financial press, asked me to give him a lucid account of what was going on without the use of technical jargon. I asked if I could give him an analogy. He said yes. It went something like this (sorry he is a bit of a party animal so I picked an analogy that he would get; this is the PG version).
Think of a late night house party involving lots of free alcohol with an old friend that lasts into the wee hours of the morning. In the afternoon, when you awake dull eyed and empty faced like a real American brother you swear that you had a great party, that all is well, and that you are only feeling sad that, alas, the party has come to an end.
As you walk around your house in a hardened haze you suddenly get the feeling that you drank past the point of linear temporality and conscious recognition.
No mind, it is time to clean up the place. So you begin to tidy up. You put the coffee on and surveil the mess. Not bad you think; at least relative to the fun. Just then you feel the need of the washroom so you dash in for your morning (in the afternoon) constitutional and at the end you realize that the last person who was in your washroom used up all the toilet paper. And for some reason they forgot to mention it—well parties are like that—besides who likes to mention that they took the very last square. Sitting there with your pants around your ankles you just laugh about what a great party it was.
Oh No!!!, that coffee you put on the stove in your fancy Italian espresso maker—you know the one with three different metals to keep the heat conductivity to the gold plated handle very low and which on its own is one of the best pieces of industrial art you own—yeah that one; it is busy melting down on the stove top. You know it is melting down because in the air along side the disgusting aroma of burnt coffee there is the more nauseous smell of sintering metal. Suddenly you stop laughing and realise what it is going to take to get out of the washroom and across the house to the stove—all you can do is hope you closed your curtains.
After those two messes are cleaned up you suddenly loose your desire to clean. But alas on you go. After some time and more than one blind eye you crash on the couch to nurse your hangover. But just then you think it would be better to sleep for another hour or two. So you crawl off to your bedroom. Then you see your bedroom and you say OMG, you give your head a shake but alas the vision becomes clearer. You close the door, it is no longer a guess anymore, you definitely hit the blackout stage. Now you start to think that maybe the same person who used your last square was the same person who crashed in your bedroom.
Back to the couch. You turn the TV on but all the emissions are like so many nails on a chalkboard. Time for more cleaning. Some soothing jazz perhaps. You turn on the stereo and some crazy music you do not even recognize begins to blare at you. As you glance across the living room to find the remote you notice more carnage: a large red wine spill across the floor with an accompanying empty glass. As you get on your knees to pick it up you see another broken red wine glass under your couch. And the carnage just keeps coming. Over the next week it starts coming back to you in flashes; real or imagined, you still can’t say.
At this point my friend asks: “what does all this have do with the financial markets.”
I say: “lets call the supplier of the free alcohol the central banks. Lets call you, the host, Institutional investors and let us call the person who stole your last square and who trashed your bedroom the Financiers. However, that person is such a good friend of yours that you will invite them back and you will beg the supplier to lavish them with more free booze. And the first person that suggests that you and your friend might have a drinking problem you will denounce as a public nuisance.”
“What stage of the party are we at,” he asks.
“You just put the coffee on the stove,” I reply.
“What if I just do what I always do and have another drink instead of sobering up?” he asks.
“You have a drinking problem,” I respond.
He calls me a public nuisance and invites me for a drink.