Global investors are acting like a frightened baby monkey and the US treasury is their abusive parent.
Yesterday global investors ran to the perceived safety of US treasuries (again) as more fears over European debt surfaced and overall fear of a global recession looked likely. Italy’s credit rating was down graded to A from A+, China ceased trading foreign exchange derivatives with a swathe of European banks including the three biggest in France and Rio Tinto’s boss came out with gloomy predictions for global commodity prices because of a downturn in global demand. So what did global investors do? They bought US treasuries, this is the country Standard and Poors has recently downgraded, which has the greatest outstanding debt, no real growth and has made a habit of printing money (See article on Quantitative Easing). And it was the Wall Street banks that got us into this mess in the first place. Why would global investors run to a country that caused the crises and is in poor economic health. It seems we have become attached to the US like a baby to its mother.
This reminded me of some rather macabre experiments done by psychologist Harry Harlow in the 1960’s. He was investigating the nature of love using rhesus monkeys and a mechanical surrogate mother. The rhesus monkeys formed an attachment to the mechanical mother because it was their only source of physical comfort. He then went further to test whether the baby monkeys would still run to their surrogate mothers even if that mother abused them. The mechanical mothers would harm the baby with spikes and random bursts of cold air and it was assumed the babies would run away from the abusive mothers and never return to them. At first they did run but then they quickly returned to the mother for comfort eventually becoming even more attached than before. The abuse frightened the infant so it went to its natural source of comfort which was the mother causing the harm. ( Opening Skinner’s box: great psychological experiments of the 20th century
By Lauren Slater )This goes some way to explaining how abused children can defend those same abusive parents and how abused spouses have so much trouble leaving. And it also explains a lot about financial markets as well. Scared investors keep returning to the cause of the problem. God help us all.
Frightened baby monkeys run to their surrogate mother: