https://www.zerohedge.com/markets/money-supply-rising-rates-discrediting-keynesian-hopium
Pretty long read, but here's the conclusion:
It seems extraordinary that the link between changes in the quantities of currency and credit, epitomised by deposit-based monetary statistics, is being totally disregarded by governments, monetary authorities, and the entire investment establishment. But that is certainly the case today. And no one seems to expect much more than an increase of a few percentage points in global interest rates.
We should not be surprised, therefore, that rising prices measured by the CPI have caught the whole establishment unawares. Nor should we be surprised that the current situation continues to be analysed through a neo-Keynesian lens, when we know it has led us to the current crisis. The crisis is now of debt traps not just for the US Government, but in all the other major jurisdictions.
The Keynesian belief that government economic and monetary management is superior to free markets is set to be discredited by market reality, which can only be suppressed so far. It has led to savers being forced to accept deeply and further deepening negative yields on their bond investments. So far, they have been prepared to have their pockets picked by this means, but that cannot last. When it becomes clear that inflation of prices is only a marker for currency debasement, and that this debasement can only continue, these deeply negative rates will no longer be available to subsidise profligate government spending.
The scale of an interest rate and bond market crisis for everyone’s reserve currency appears to be severely underestimated. The sudden emergence of runaway price inflation has led to tentative comparisons being made between the current situation and the 1970s. But so far, there is little evidence that these comparisons are being taken seriously enough.
If they were, analysts would have to conclude that events in common with the 1970s which led to high nominal bond yields and coupons in UK gilts exceeding 15%, are potentially far more destabilising today than they were then. That being so, the world is on the edge of a substantial bear market in financial assets driven by global bond prices normalising from the current deeply negative real rates to levels that truly reflect deteriorating government finances. All financial asset values will be undermined by this adjustment.
It is increasingly difficult to see a way out of these difficulties, and the Keynesian hope that economic growth will deal with the debt problem is simply naïve. In 2010, respected economists (Carmen Reinhart and Kenneth Rogoff) concluded that at a government debt to GDP rate of over 90% it becomes exceedingly difficult for a nation to grow its way out of its debt burden. With advanced economies averaging a ratio of 125%, Japan and Greece at over 200%, and some Eurozone nations at over 150%, there are debt traps almost everywhere ready to be sprung.
In highly indebted fiat currency economies, there can only be one outcome: once one falls into a crisis, the others will follow with accelerating currency debasements leading to the destruction of faith in their currencies as well. And with a government core debt ratio to GDP of 125%, the US with its dollars is up there with the others to be destabilised, being over-owned by foreigners, and transmitting risk to all currencies that regard the dollar as its principal reserve currency.
It can only be concluded that as we enter a new year the adjustment to market reality is likely to be more violent than anything seen in the 1970s.