Part 4/14:
A critical discussion revolves around bonds—traditionally a safe, predictable component of financial portfolios. The speakers articulate how, in the current environment, bonds almost act like a revolving credit card debt, with issuers continually rolling over and refinancing. Long-term bonds, once considered safe if held to maturity, now face significant risks when markets violently adjust interest rates.
The key issue is duration mismatch: banks and investors have bonds they must sell during downturns, often at significant losses, exposing their portfolios to instability. This underscores the risky nature of fractional reserve banking, where confidence is king, and the entire system hinges on users' trust rather than the intrinsic value of assets.