|
Napanee, Ontario | I think when everyone hears the word asset, they forget that government bonds are assets.
In fact, they are the most important class of assets in the world, as they stipulate the risk free rates which are the cornerstone of the worldwide financial system.
Here's where the deflation argument falls apart.... and it is exactly why the FED, ECB, and nearly every other banks actions have pursued the monetary stimulus demonstrated so far, and will continue to do so.
When bonds deflate, the interest rate rises. If there is a trigger like I mentioned - war, trade dispute... or just aha moment of loss of confidence in a countries ability to repay, and buyers dry up... the price of bonds start to plummet. This already happened. It's why the FED had to step in and nurse the Bid. It's why ECB had to step in and keep Greece, Italy, Spain and other countries from going bankrupt and nurse the bid. The central banks are inflating the price of the bonds to keep the interest rates low, so the debt can be serviced.
That is really all this is about.
So the limit to deflation, is the threshold of serviceability to the sovereign debts. Once that point is reached..... and surpassed, that will be the end of the fiat regime. Risk free rates will no longer be risk free -as the countries are defaulting, and the exodus out of nominal assets (cash, Bonds, other paper assets) related to those countries will be swift and vicious. And that crowd will be fleeing to exactly the assets you describe (gold, land, ect)
When the country defaults, that's it. That is what the central bankers are trying to stave off with low interest rates. But printing money will get you the same result - continued inflation of real assets like gold and land and other tangibles.
(gold and silver are trading down, currently, but the metals paper market is probably the most manipulated market in the world, and nothing goes straight up forever. As more and more QE continues to come, the longer the prices stays down from margining up paper market short sales, 100:1, 150:1 500:1 over physical, the bigger the explosion will be.)
| |
|
The 4.5 trillion dollar balance sheet. Continued QE
