FROM STOCKHOLM TO HELSINKI SYNDROME?
As readers will be aware I have described the phenomenon of endless central bank financial repression and financial markets’ ostensible affection for what has evolved from the ‘Greenspan put’ during the Asian debt crisis, to the $9.0 trillion central bank backstop in response to the economic shock of the pandemic, as being analogous to ‘Stockholm Syndrome’.
The latter is defined as a psychological response wherein a captive begins to identify closely with his or her captors, as well as with their agenda and demands, which one could argue describes the phenomenon of the broad risk asset rally in the face of the economic shock due to the pandemic. The central bank promise not to take away the punch bowl from the party has underpinned this, with markets also emboldened by previous successes in throwing tantrums to force a ‘retreat’ from central banks when they tighten policy. But has an inflection point been reached, where Stockholm Syndrome morphs into Helsinki Syndrome?
This is not ‘Helsinki Syndrome’ as mistakenly referenced in the film Die Hard, but rather as defined in a 1985 article in The Nation: “Most feared of all Scandinavian disorders is Helsinki Syndrome, in which positively charged particles of information afflict the victim’s central ideological system, causing him to question America’s absolute moral superiority (i.e. the Pax Americana) in the Cold War. Specialists in the field refer to victims of the syndrome as being ‘Finlandized”. In other words, are markets questioning the wisdom of major central banks’ pledges to keep rates at current levels for a protracted period, in the face of nascent inflationary pressures, and are they questioning the aura of omniscience and omnipotence that they have bestowed upon central banks since the GFC? The obvious counter would be that markets have mistakenly tried to second guess central bank policy moves on many an occasion in the past few decades, and the mantra that ‘you can’t fight the Fed’ (or other central banks) remains as valid as it has always been.
HAS AN INFLECTION POINT BEEN REACHED, WHERE STOCKHOLM SYNDROME MORPHS INTO HELSINKI SYNDROME?
6 | ADMISI - The Ghost In The Machine | Q1 Edition 2021
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