His last paragraph:

"Liquidity does not produce solvency. Bailouts from one insolvent entity to another insolvent entity do not produce solvency. Efforts to stimulate growth will not produce solvency if a large fraction of the economy is overburdened with debt obligations that cannot be repaid. What will produce solvency is debt restructuring. The best hope is that global leaders will recognize the necessity and move ahead with debt restructuring in an orderly way, particularly in the European banking system. The worst nightmare is that global leaders will deny the necessity and belatedly discover that they have squandered the last opportunity to avoid a disorderly finale."

Everything he says is true. The first part I underlined is what he and others like him (John Mauldin comes to mind) are "hoping" for and what they are assuming when they call for their deflationary scenario. The second part that I underlined, the disorderly finale, is in my opinion the more likely outcome, based on what I have observed happening over the last almost five years now. If and when I see changes in actions rather than lip service addressing the problem, I may change my mind about the probable outcome. These authors never go on to explain what the outcome will be if the "disorderly finale" actually occurs. They simply do not follow the thought process on through, most likely because it is too scary and unfathomable. They just do not accept that it can happen. Yet history tells us it happens time and time again. I have linked to several different books in the past describing these historical monetary events. They are not at all uncommon. What is uncommon this time is that a good portion of the world has the same problem all at the same time. That is what makes this situation unprecedented.

I don't disagree with their analysis at all. I just believe they are wrong in what they think the policy makers will achieve and that what they themselves acknowledge can happen, which they dismiss, in my opinion actually will happen. They acknowledge it as a possibility, they just don't see it happening and don't even go on to explain what it would be like if it did happen.

John