Central banks are doing almost everything to wipe out all risk. They have provided financial institutions with free money, less regulation. Borrowers that can’t afford the financial commitments are being saved. It is fair to say that the central banks have put a safety net on the financial markets. A very unhealthy thing.
This has a really bad result. No one is expecting big borrowers to default. When was the last time that you heard about risk premiums on bonds? Bonds being issued by banks, big companies or governments have no risk premiums at all.
If we look at the boom that is happening right now than it is clear that this can only continue if and when we keep interested rates suppressed and stimulate economic growth.
We are not supposed to ask the question: how long it can go on? One of the methods to expand the technical possibility is by simply getting all risk premiums out.
When we get the real market prices in and when we take into consideration the default risk than we see what will happen soon. Collapses and defaults. what will happen when the so-called safe institutions are no longer making the interest and debt repayments?
Yes, then all hell will break loose. This is something that will happen and then you better be prepared.