The Return of Disco

As debt mounts and the recession lingers, we are surely going to see a number of governments trying to lighten their load through financial repression, higher inflation, partial default, or a combination of all three. Unfortunately, the endgame to the great recession of the early 2000s will not be a pretty picture.

via globeandmail.com: Countries are so deep in debt, they risk drowning in red ink.

Still, many economists see the answer as being “more debt”. This is fine (according to some theories), assuming that governments do a huge downsizing as soon as the crisis passes, but what are the odds of that?

Anything’s possible, but it seems to me that the most likely outcome will be stagflation: an anemic economy with high inflation – just like the 70s. Keep your eyes open for the return of disco.

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