Caroline Ritchie: Borrowed dream marches on

Caroline Ritchie

Occasionally, I call into a certain brokerage to briefly annoy the occupants and chisel the skinny on a few shares.

I used to work here, so it is like stepping back through a plate glass window, and not a lot changes.

When I press for the goss on a stock of the moment, the reply goes something like this: "Oh, you know, shares go up, shares go down."

This response is partly because the boys love watching me seethe at their vagueness, but a lot also has to do with the fence-sitting that comes with the job.

Clients get the same line. When you deal in future unknown eventualities, giving yourself the biggest margin of safety without sounding ridiculous has much to be said for it.

To make these gents feel a bit more useful, I fire off questions they can easily answer with a quick Google.

"What is Ben Bernanke's favourite colour?" and "Did Milton Friedman own a cat?" and, "What's the current global level of debt held by households, governments, financial and non-financial corporates?"

One and two were, of course, deeply important commercial questions, but when the answer to the third, US$215 TRILLION, came back, even I had a little gasp.

This is 325 per cent of global gross domestic product, (GDP). That's a lot. It crept up fast, too.

Emerging markets can claim a decent chunk, but since 2006, outstanding government debt in the US and UK has doubled. In private, we are racking up the liabilities as if tomorrow isn't coming.

Now, the sharebroker and the debt-issuer have similar vested interests, even if they vehemently disagree in bars about the intellectualism of it all and end up in noisy tete-a-tetes about who is the bigger chihuahua.

Each is very, very intent on things carrying on like this, stacking the monetary Jenga block higher and higher, but not too tall, easy does it, careful.

They are also keen on growing their own businesses, yet kicking the can of inevitability down the road at the same time.

It is a game, but we don't call it that. We call it the economy.

The main mystery, and to the continual perplexion of cynics like Ms Ritchie, is how long it has been going on without total catastrophe.

I'm really looking at debt here, shares are wont to explode fairly frequently all by themselves.

In the old days, and call me a troglodyte, but when you borrowed something, the deal was that you had to pay it back.

Yet at the very highest levels this appears not to be the case.

Through worldwide quantitative easing, printing of bills, sneaky currency devaluations on an incredible scale and the continuous re-financing of stuff, the likes of which you and I would never get away with at Farmers, the borrowed dream marches on and on.

In times like this it pays to turn to humour, often the root of all truth, and nobody did it better regarding the international marketplace than comedian John Clarke, RIP.

As economist for a bank, when asked, "Shouldn't people just buy things they can afford?", his classic retort will travel the ages, "You don't need to afford the things you're buying, Brian, you need to afford the interest on the money you need to borrow in order to buy them."

If you're not chuckling, you should probably be crying.

* Caroline Ritchie is a former AFA, sharebroker and portfolio manager. She runs Investment Stuff, a sharemarket-based investment-coaching service. Visit her at www.investmentstuff.co.nz

This column is not personalised financial advice.