<< Our liquidity-drunk “markets” remain over-priced due to the chronic intervention of the global central banking cartel, which has demonstrated over and over again that it won't tolerate even the slightest drop in asset prices. Once faith in central banks is lost, their power to delay the deflationary day of reckoning goes with it. The stupendous amount of debt they have helped heap onto the financial system since 2008 will start going into default and the only question that will matter is: Who is going to eat the losses? >>
I am fully convinced that ALL central banks will follow the BOJ's course, and expand the money supply to simply monetize the bad debt that exists on the balance sheets of the banks (but screw the rest of us holding such debt....). China and the US both. So the losses from previously created credit that cannot be repaid by the original debtors will be monetized.
Ultimately, then, we ALL pay the debt through currency devaluation. There is no external market regulator at this point that I can see. I welcome suggestions from other readers to convince me otherwise.
This may not create, in itself, an inflationary spike, because one could correctly argue that the inflation was already unleashed by the act of excess credit creation in the past (the debt that cannot now be repaid), which resulted in asset price inflation (esp. real estate, stocks, and bonds) and rampant speculation. Rather than the CB 'unwinding' the excess monetary capital, it will remain baked in the cake.
There could, however, easily be an 'echo bubble' as the 'new money' burns a hole in the pocket of the banks, who eagerly look for a new set of borrowers so they can leverage the asset into producing more income. Would the CBs restrain the banks, having just 'learned a lesson'? Doubtful.
We will see how this plays out soon enough.