Many commentators are predicting a collapse in the current dollar-based global monetary system (e.g. Jim Rickards, Peter Schiff, Jim Rogers, Mike Maloney). Given the unprecedented expansion of the money supply by the major central banks and the increasing levels of sovereign debt, how do you rate the likelihood of this event? Many thanks.

Eoin Treacy's view

Thank you for this question which has come up with increasing frequency. Governments have absorbed a great deal of private sector debt. This means that while the consumer has deleveraged and the corporate sector has refinanced, net debt remains stable because sovereigns have increased their liabilities so much. Yes, governments have too much debt, central bank balance sheets are at previously unimaginable levels and the size of unfunded social programs is mind boggling. However this is only half the story. 

We are in the midst of a technological revolution which has increasing applications in the energy sector. Billions of people globally are being lifted out of the poverty and into the middle class. The confluence of these secular themes has the capacity to fuel growth and enhance productivity which ameliorate the deleterious condition of sovereign balance sheets. 

Regardless of how one leans in this debate, price action is the only true arbiter and there is no evidence that the global monetary system is disintegrating. Also see David’s piece in Comment of the Day on May 22nd