The bond market is telling you directly …
“Forget the thoughts of recovery and hunker down for more economic pain and crisis.”
Deleveraging is keeping demand depressed, making deflation the big threat. Indeed, especially given the world’s bloated debt problem.
The last thing you want when you’re saddled with debt is deflation. In a deflationary environment, money increases in value, but it’s much harder to come by. So those with debt tend to have a more difficult time servicing that debt.
That doesn’t bode well for economies that have recently been exposed as “at risk” of default.
When you put the pieces of the puzzle together, it seems clear that the sovereign debt problems that served as a warning signal in the first half of this year will end in government bond defaults and currency devaluations.