The Magnitude of Deleveraging and Fiat Currency System


Author Larry Berman

Posted: 25 July 2012 re-posted from etfcm

The bond markets of the world are telling us all is not well. Very few investors understand the magnitude of the deleveraging that is needed combined with the loss of confidence in the fiat currency system. While quantitative easing (basically printing money to buy outstanding bonds) is more politically palatable than the austerity being forced on Europe’s peripheral economies, it ultimately undermines confidence and is not sustainable.

As Stephanie Pomboy articulated very well in Barron’s this week; it probably ends with the world going back to some sort of gold backed system. This probably takes years to play out and it will not be until governments hit bottom and all bullets in the Fed’s arsenal are used that this eventuality plays out. In the mean time, nothing short of strong economic growth un-aided by governments will normalize the bond markets.

 

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