Thursday, September 2, 2010

Treasury Bonds or Treasury Bombs?

Those who fail to learn the lessons of history are doomed to repeat them.

That saying is what inspires this next post.

Shortly after the Second World War ended my grandfather was in the process of rebuilding in Holland. I remember hearing the story of how one morning he, and everyone else in the country, awoke to a surprise radio announcement that said all of the "old currency" was being replaced with a "new currency". In effect, a currency reset took place. Call it a reset, or call it a devaluation, but regardless of what it's called the Dutch government effectively offloaded their debt by dumping the bulk of it onto their citizens.

This is not a new concept and, in fact, this type of thing is happening with great frequency in many countries around the world today. For some reason many people don't think it could happen here, and many continue to cling with hope to all forms of paper assets, derivatives and government promises/IOUs.

It might take a day; it might take a week; it might take a month...a year....even a decade....but whenever it happens I am convinced that one day we are all going to be ambushed like that all over again.

This article is enlightening.

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