The world economy in 2014 (time of writing) is teetering on a knife edge. Sovereign debt is indescribably high while, at the same time, expanding more rapidly than ever before. Banking ‘debt’ (if you still can call those rip-off sales outfits banks) is hundreds of trillions – of dollars, pounds, euros etc. The nightmare in the background for financial institutions is derivatives. I like to refer to them as gambling contracts. They are mostly loss-making but not fully written down in annual accounts at this stage. But this whole debt mountain is unsustainable and unpayable, so it has to be written off somehow. That is, unless ‘money printing’ destroys currencies sufficiently to enable historic debt to be regarded with impunity.
Update November 2014: The DEFLATION word is appearing frequently now. The fear of it has caused both Europe and Japan to launch new money floods. Why do they do it, you may well ask, considering that the U.S and U.K.have both demonstrated the ineffectiveness of such a policy? And, any first year economics student will remind you, printing money only delays bankruptcy while increasing the national debt. You need an increase in borrowing to expand an economy these days and that can’t happen while debt is unmanageable. I can only guess that many sovereign nations are pushing into the future the day when they’ll renege on repayments. The longer it goes on, the bigger the crisis to come in my view.
March 2017: Several other updates (on this page) have been superseded since the deflationary impetus has been accepted. Still, very few people have accepted principle that printing money delays the inevitable serious financial dislocation to come. This dislocation becomes potentially more disastrous while debt is added to with impunity, in a ‘dream’ that the debt problem will be resolved by increasing it. The only hope for governments is super inflation for a few years. But inflation is not short term price rises. True inflation is caused by one principle only: Too much money chasing too little goods. That is not the case by any stretch of the imagination.