Last week, Richard Fisher, the president of the Dallas Federal Reserve and a member of the central bank’s policy-making committee, compared Wall Street’s addiction to the Fed’s economic policy as “monetary morphine.”
I coined a version of that term more than three years ago because it aptly describes how the Federal government is handling the economy.
Ben Bernanke, current chairman of the Federal Reserve, is the “morphine dealer” as he continues to promote his “accommodative monetary policies,” which keeps interest rates extremely low. The outcome is that banks, companies, and Wall Street investors can borrow cash at no cost and put it in investment vehicles that return interest. This easy money is addictive and unless Fed policies change, it will be nearly impossible to wean them from this guaranteed pay day. This is the basis of the more serious affliction — morphine economics.
To get to the root of this analogy, one has to travel back to the 18th century when the British tried to negotiate trade agreements with Emperor Qianlong, who ruled China at the height of the Chinese empire.
Low demand for British goods in China and high demand for Chinese goods such as silk and tea in Britain forced the British traders to purchase these products with silver and gold, the only currency accepted by the Chinese.
The British quickly began accumulating a large trade deficit that it could not sustain. They needed to find an economic substitute for the silver and gold, but one that would come with greatly reduced prices.
The solution, although illegal at the time, was to begin smuggling opium into China from the plentiful poppy fields of the Indo-Gangetic plain.
Despite Emperor Qianlong’s prohibition of importing opium to China, it wasn’t long before Chinese society, including government officials, became addicted to the opium, from which morphine is derived.
Raw opium contains some twenty different alkaloids of which morphine is one. It affects the central nervous system. It also impairs mental and physical performance, relieves fear and anxiety, and produces euphoria. Morphine’s euphoric effect is highly addictive.
Tolerance (the need for higher and higher doses to maintain the same effect) and the physical and physiological dependence develop quickly. The malevolent outcome of morphine addiction is that it masks any underlying health problems, so while someone may actually be dying; the euphoria deadens the pain until the person succumbs to the disease.
China’s opium addiction erased centuries of glory and unleashed a thirty year revolution. It allowed for things like the Rape of Nanjing, the communist takeover in 1949 and purges of the Cultural Revolution to take place. By its end, it created the conditions where millions of China’s citizens lived under foreign sovereignty in their own country.
You could say that China’s downfall could be attributed to “Morphine Economics.” If you study China’s sad history throughout the 19th and 20th centuries you can certainly understand their distrust of the West. China has passed through decades that no great nation should ever have to tolerate. China’s addiction should have served as a cold, stark warning.
Yet while Morphine Economics ended in China, another nation fell under its deadly spell: The United States of America. As the economy eroded, the US began accumulating mountains of debt. It has become our morphine.
We borrow money to pay debts today, unfazed by the legacy of the debt that we will face down the road. The euphoria of appearing to have the economy under control masks the worthless “vapor paper” currency that is being printed to stave off an economic collapse. Even as we watch our economy suffer, we cannot turn away, dooming the U.S. to succumb to its addictive lure.
The ultimate irony of course, is that while the U.S. is being crushed by its runaway debt, it is being bought up by China — a nation that innately understands the perils of Morphine Economics. The world has come full circle.
I think Emperor Qianlong, from wherever he rests with his ancestors, gets no satisfaction from seeing Bernanke make the same mistakes he did.
It is up to us to learn the lesson and reverse our dependence on Morphine Economics before it causes irreparable damage to the economic health of our country and that of our future generations.
APR
