Neurosis is a substitute for legitimate suffering

October 13th, 2008 by admin | Filed under Daily News, Global Credit Crisis, Mortgages, Saving.

In psychotherapy, the accepted wisdom is that all mental illness is born out of an unwillingness to experience legitimate pain. In order to avoid the pain, a fracture forms in the psyche and we become strangers to ourselves, disconnected from out powerful true human emotions. A neurosis is born.

When the interest rates were lowered after the dotcom bust, a few voices warned us that we were storing up trouble for the future. We should, they said, take the pain now. It will be better for us in the long run. They said we shouldn’t interfere in the market mechanism. Let the market sort itself out and the pain, though sharp, will soon be over.

This isn’t what our government wanted and this is why. The Western economies now depend on consumption, not manufacturing, to drive economic growth. The money to pay for this consumption had to come from somewhere. It came from debt. The debt came from savings of people in Asia. The average household in the US now owes $450,000 in debt. Asian citizens were happy to lend us the money…they saw us as a good risk. Once the dotcom bust came, the consumption party had to continue. The economy couldn’t be allowed to face itself in the mirror…the show had to go on.

Enter the real estate bubble.

Get the people borrowing, get the value of homes UP, give them money to spend, make it easy to refinance, pass it into law…make lenders lend to people who can pay it back, give them toys, bread and circuses. Remember a politician’s number one rule – Get re-elected. It’s built on rule number two – It’s the economy, stupid.

This was the political sleight of hand to keep the economy afloat. It’s like a junkie who takes more and more drugs, never wanting the party to end. Two things can be said about this…the hangover will be worse for every hour the party continues….and all parties have to end eventually.

As long as home prices kept rising, this worked fine. But as Asians saw their savings being lent to people with no jobs, not proof of earnings, on earnings multiples that would have made your eyes water, the end of the party was in sight. All those people who had borrowed way above their means were, understandably, the first group to falter. They were the pin that burst the bubble….and the whole house of cards, which had been built much higher than it ever should have been, came crashing down.

And we’ve learned nothing. Yet again, the government is going to drug us up, put an arm around our shoulder like a friendly drug dealer. “Don’t leave the party” they whisper into our ear…”the party won’t be the same without you, you’re the life and soul” The worst part is, even though we know they’re lying to us…we’re already preparing our excuses not to show up for work on Monday morning. “There’s more drugs on the way…just wait…don’t leave now”.

There are more drugs on the way, but it should be the police. The party has been going on for far too long, the neighbours are complaining about the noise…but the police won’t show up since they’re being paid off by the drug dealers and the neighbours are being quietened down with threats of having their houses burned down.

The party will continue. The price will be steep indeed. Our avoidance of pain is the mechanism that will keep us dancing. When we should only be suffering from a hangover, we will eventually end up in rehab…or worse.

Wake up…look around you…it’s time to go home, get some sleep, get up for work and face the music. The days of us gambling and consuming with other people savings instead of saving and investing in real production are over. The time has come to pay the piper.