We have been living through such a time as we witness the financial markets ebb and flow based on not totally understood macroeconomic events. The world remains in a major financial crisis and central bankers are taking extreme gambles which could have serious longer term negative repercussions.
George Soros asks the question: “When do the reflexive connections which are endemic in financial markets turn into self reinforcing, historically significant processes which affect not only prices in the financial markets but also the so‐called fundamentals that those prices are supposed to reflect?” He then submits an hypothesis, that has to be tested, that there has to be both some form of credit or leverage and some kind of misconception or misinterpretation involved for a boom‐bust process to develop. He goes on to say that “Misconceptions play a significant role in the making of history.”
While his message was particularly relevant in understanding the 2008 market crisis and bust, it also helps to give some understanding to the current turmoil in Europe and the United States – that misunderstanding and misconception of the degree of impact of the vast quantity of sovereign credit and leverage, especially in the United States and its “reserve currency” dollar.