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>…Heavily indebted governments around the world are borrowing money for free… I don't disagree with any of what you say, but this part in particular makes me t

>…Heavily indebted governments around the world are borrowing money for free… I don't disagree with any of what you say, but this part in particular makes me think that at the end of the day, governments around the world (esp "developed") ones are having a hard time allocating their ability to acquire resources (with their fiat currency effective "infinite money") in a way that will appease their respective populous. Is this a political failure of us all to hold our governments accountable? Are we witnessing the inability of fiat currency systems to effectively act as a way to distribute physical resources beyond this current threshold to those with a "need" that can't quite be satisfied with current availability of such resources on global markets? What seems to be the case is that when notional value out paces market value (or price what people are willing or able to buy at, if any buyers at all at any given price points [beyond those who are able to borrow for free at large $ levels) in any given asset classes, there isn't really any good market incentive to correct such (but plenty of bad ones like defaults on contracts). I really don't see things changing soon without drastic changes to how we all consider resource allocation in general.

ddeck 10y ago
You raise some interesting points. I would draw a distinction though between fiat currency and the present environment. We've had fiat currency for a long time, but the current level of monetary easing is a recent affair. I do wonder what the end game is. In the absence of meaningful levels of inflation, central banks are confident in maintaining and increasing QE in the belief that if it's not working, it must be because it's not enough. The problem is that at some point (perhaps already), governments and corporates wont be able to tolerate higher borrowing costs. US government debt is double what it was in 2007 (~USD 18 trillion vs 9) and yet the annual interest cost is around the same. The Japanese government would need to spend every dollar of income and corporate tax revenue just to pay the interest if the interest rate on their debt rose to just 4.5%. QE generally has the bonus effect (and some would say it's the primary motivation) of devaluing your currency. The problem though is that this only works if noone else is doing it. From Kyle Bass: I had a fascinating out of body experience meeting with one of the world's top central bankers in a private meeting about three years ago. And he said, "You know Kyle, quantitative easing only works when you're the only country doing it." [1] http://finance.yahoo.com/news/thing-top-central-banker-told-000000371.html http://finance.yahoo.com/news/thing-top-central-banker-told-...

ddeck 10y ago

You raise some interesting points. I would draw a distinction though between fiat currency and the present environment. We've had fiat currency for a long time, but the current level of monetary easing is a recent affair. I do wonder what the end game is. In the absence of meaningful levels of inflation, central banks are confident in maintaining and increasing QE in the belief that if it's not working, it must be because it's not enough. The problem is that at some point (perhaps already), governments and corporates wont be able to tolerate higher borrowing costs. US government debt is double what it was in 2007 (~USD 18 trillion vs 9) and yet the annual interest cost is around the same. The Japanese government would need to spend every dollar of income and corporate tax revenue just to pay the interest if the interest rate on their debt rose to just 4.5%. QE generally has the bonus effect (and some would say it's the primary motivation) of devaluing your currency. The problem though is that this only works if noone else is doing it. From Kyle Bass: I had a fascinating out of body experience meeting with one of the world's top central bankers in a private meeting about three years ago. And he said, "You know Kyle, quantitative easing only works when you're the only country doing it." [1] http://finance.yahoo.com/news/thing-top-central-banker-told-000000371.html http://finance.yahoo.com/news/thing-top-central-banker-told-...