06/16/2017 - Charles Hugh Smith: Debt-Asset Bubbles Implode Either Via Inflationary Collapse Or Via Deflationary Collapse
“When debt-asset bubbles expand at rates far above the expansion of earnings and real-world productive wealth, their collapse is inevitable. The Supernova model of financial collapse is one way to understand this .. Financial supernova collapse has two pathways which we call deflationary and inflationary .. In a deflationary supernova, defaults–and the avoidance of additional debt–are the gravity that overwhelms the forces of expanding debt. Once the losses and risk are visible to all participants, the herd psychology changes, and participants no longer believe that central banks ‘are now the ultimate power in the Universe.’ .. The other pathway to implosion is to print currency with sufficient abandon that debtors have enough money to service their debts. Emitting sufficient new free money to re-set all the unpayable debt destroys the purchasing power of the currency–a supernova implosion that is little different than the deflationary implosion. The inflationary pathway results in the destruction of the currency, impoverishing everyone holding the currency.”
