Toys of the Addict

You talk about things that nobody cares
Wearing other things that nobody wears
You're callin' my name but I gotta make clear
I can't say baby where I'll be in a year
--Aerosmith

Let's say a retailer marks its prices down to super low levels. You like to consume, so you buy boatloads of the discounted goods.

Not only that, but there are lenders out there offering super cheap credit. One of those lenders happens to be, yep, the deep discounting retailer. So you borrow big from the retailer and others so that you can purchase even more uber cheap products.

Over time, you find it increasingly difficult to pay your bills. You're consuming more than your income can support. Moreover, borrowing more funds is getting harder because the cost of credit is increasing. The retailer is still offering credit, although the terms are getting more expensive.

Since you like to consume, you basically shake it off and continue buying those deep discounted goods on credit funded largely by the retailer.

It doesn't take long, however, before pangs of discomfort return. Persisting with the current arrangement seems untenable. So you consider some alternatives:

a) You could reduce or totally cease consumption of the retailer's items. Less consumption increases capacity for saving and paying down debt.

b) You could stop payment on some or all debt (a.k.a. default)--perhaps even while continuing consumption. Lenders, however, will almost certainly cut off any more loans because it will be clear that you are not a good credit risk.

c) You could publicly claim that the retailer is unfairly keeping prices too low and forcing you to consume. You would demand that the retailer raise prices immediately.

As ridiculous as c) seems, this is basically the approach the administration is currently taking with China. It is accusing China of keeping the price of its currency too low and demanding that it strengthen the yuan immediately.

What makes this situation doubly laughable is that the US is making these claims while engaging in its own gigantic schemes of price manipulation. This irony has not been lost on the Chinese and other countries.

Perverse logic is the way of the addict.

position in USD, Treasuries