Central banks are running out of options. Here's what's next...

What's been scaring central banks for the past year now has been exploding inflation.

Inflation is just a euphemism for currency debasement through printing of fiat money.

Milton Friedman has been quoted to death for pointing out that:
“Inflation is always and everywhere a monetary phenomenon..."

But it's also true.

Yes, inflation is just an increase in the money supply. And there's been more than plenty of it over the last few decades.

What people have been experiencing as expensive groceries, unaffordable homes, and soaring asset valuations is mostly a debasement of the currency.

But they went too far and let the money printers run too hot.

Now, global currencies look like they're just about to collapse.

JPY dropped 30% this year alone, EUR fell to a 20-year low, and GBP is teetering around dollar parity for the first time ever.

Panicked central banks are just now trying to course correct and reverse decades of currency mismanagement.

Only they can't.

Efforts to tighten the money supply is killing the bond market.

Why is that important?

Bond markets are what hold the financial system together. Credit instruments are in fact the basis of our modern economy.

In past crises, people would flee to sovereign debt as a save haven - believing in the resilience of government and that therefore bonds were a store of value to weather the storm.

But the math doesn't check out anymore. Governments have become too indebted.

For the first time in recent memory, ALL markets are now crashing together. There's been no flight into bonds.

Instead, bond markets are MORE volatile than equity markets.

This is not hyperbole, this is what is actually happening.

The below chart shows how bond options implied volatility (MOVE) is spiking far more than equity options implied volatility (VIX).

Oh-oh...

The bond market is supposed to be the mature, big brother of financial instruments, while equities have historically been seen as the more exuberant, speculative sibling.

But now the tables have turned, implying a loss of faith in the system itself...

In fact, bond volatility is back to its highest level since March 2020 - a time when people believed a horrible disease would kill us all.

There's now rumors that regulators are privately asking institutions to avoid trading that may create volatility in the securities market.

Translation: Please stop selling bonds.

Because when the bond market goes, pretty much everything else goes as well.

Central banks may soon have to make a tough call of whether to continue the debasement of currency and let inflation rage or let the bond market collapse and reset the whole system.

deepfinancecapital.org
@machinelearningnet2