Recent interview with former fund manager George Soros.
Clearly Soros sees the perverse situation with respect to the main currencies of the world. Those that have retained the right to print money are able to stave off default, yet countries like Greece or Italy are put in the cross hairs of bond traders.
“I think Greece leaving the euro zone or being pushed out is now a real expectation and this is what is necessary to strengthen the rest of the euro zone because the way the financial markets work they can actually push a country like Italy into default – see this is what [is] the weakness of the euro as it is currently structured because a developed country has no reason to default because it can always print money. By printing money it can devalue the currency and people can lose money by buying debt but there is no danger of default, but the fact that the individual members don’t now control the right to print money – they have given that right over to the central bank you see, and that has created this situation with a European country that could actually default and that is the risk that the financial markets price into the market and that is why say ten-year bonds yield 6% whereas British 10-year bonds yield only 1.25%. That difference is due to the fact that these countries have abandoned or surrendered their right to print their own money and they can be pushed into default by speculation in the financial markets.”
As we can see, countries like the U.S., the UK, and Japan have record low yields only because they can print money. The low yields arenota function of these nations being well managed from a fiscal point of view.
The next question is what happens after the bond market has shredded countries like Spain and Greece? Is Japan next in line on the firing range of the bond vigilantes?