The Debt Bomb

By Puru Saxena, GoldSeek

BIG PICTURE- “It’s a question of how do you achieve the deleveraging. Do you go through a long period of slow growth, high savings and many legal problems or do you accept higher inflation? It would ameliorate the debt bomb and help us work through the deleveraging process” – Kenneth Rogoff, Professor of Economics at Harvard, Former Chief Economist at the International Monetary Fund

Make no mistake; the developed world is drowning in debt and as outlined above, there are only two viable options – a global economic depression or very high inflation.  It is our contention that the policymakers have chosen the latter option and over the following years, we will experience the trauma of severe inflation.

Look.  The American government is staring at total obligations of US$115 trillion,America’s debt to GDP ratio is off the charts and the American public is also up to its eyeballs in debt.  Under this scenario, you can bet your bottom dollar that the American establishment will try to reduce this debt overhang through a process known as monetary inflation.  If you have any doubt whatsoever, take a look at Figure 1 which captures the incredible expansion in America’s monetary base.  As you can see, over the past two years, the monetary base in America has expanded from US$827 billion to an astonishing US$1.93 trillion!  Up until now, this surge in the monetary base has not permeated through the broad economy but once the money velocity picks up, the money supply will zoom and the end result will be surging price inflation.

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