I can't help think that the carry trade is part of why Japan has been trapped with low domestic growth and a strong currency. No matter what they do, no matter how much money they print it goes abroad to be invested in other things by other people.

Now 1 GBP = 133 JPY

WOW !!!!

However , 15 years ago the rate was about the same . The carry trade has been a mainstay of the western economy for a many a year. I f I was clever I could predict a future for this scam !

I think they will too. The question is, can they sustain it or will it blow up in their faces? It happens to bomb disposal experts whose lives are on the line. It could happen to the financial class. There is hope.

But this outcome would end the current banking system, wpould swallow whole most of the financial class and their wealth – NOT all but many – And would put an end to the project of globalization. It would have to. There would be no job creation without some form of what we currently call protectinoism. A means of stopping markets being ruled by the lowest levels of enerything – wages, safety, environmental regulations etc. Today it is all labelled as 'protectionsim' so as to cast it out from any discussion. That too would have to end.

For all these reasons there are huge powers ranged against such an outcome. Would those made wealthy and powerful by the present system, faced with a choice between inflation or what I have just described, chose inflation and chance holding on to power after hyper-inflation? I don't know Rob. But I know which I want for my children.

That is what I think, Rob.

I think the FED and other Central Banks are trying to follow a narrow path that off-sets deflation and possibly inflates a little, but does not set off major inflationary forces. What they want is enough to try to devalue their own currency relative to competitors, but not enough to destroy anyone. This is difficult and made more so because each nation and its CB are competing with the others to devalue that competative amount and gain an edge for their exports.

I don't think anyone yet sees any value in fast inflation and devaluation. Because it would lead to a revolt among those who hold the debt. Most important among them being China. If China thinks the buying power of its several trillion in US debt is being infalted away by the US, then China should/would dump its holdings if for no other reason than pure revenge.

All would be mightily impoverished by such a series of events. Better for them all, if they can walk in step. Allow some inflatoin and devaluation in the hope of re-building a trading partnership but not too much that a chain reaction sets in and everyone loses.

Of course the people who lose from the 'success' of walking this narrow path are the Western Tax payers and citizens. As we are all the time required to pay off the debts of the entire financial system.

Of course the bond bubble – which I take as being 90% sovereign and only a small part corporate – could implode. I have argued from the start that the 'bail-out and debt denial' ppolicy is unsustainable in the longer run. Unsustainable not least because it requires that no nation, no people, balk at the sheer injustice of the debts they are being required to pay and the austerity they are required to suffer – all in order to save the banks and the wealthy who profit by them.

I think something, some debt, sovereign most likely – will implode, it will then take out banks who are exposed to that debt. I am sure the ECB are working behind the scenes to ring fence as much of the bad debt as they can in as few places as they can. Not easy. They may not be able to do it. I would be trying to shove it in a couple of Landesbanks and a couple of other sacrificial banks in a few countries that might be able to absorb the shock.

But if it goes and isn't absorbed, then there will be a massive and uncontrolled eruption of debt. The stock markets will plunge for sure. Will a major currency collapse too? Depends on how long before it happens. The longer it is before it happens the worse it will be.

Won't allow me to put it all in one post so continued below…

I have recently read a few articles about the bond market bubble and how it may end up bursting. Opinion seems to think that this may lead to hyper-inflation as the first to get out of bonds rush headlong into commodities. There was a recent article on this over at zero hedge.

It then struck me that this bond bubble may perhaps the aim of the powers that be (FED). How can you escape from deflation and also rapidly inflate away debts to such an extent that a whole new currency may ultimately be required? They must surely realise that there is no way out of the current mess – they cannot be stupid.

Any thoughts?