Is this how the global debt problem will end?

A fundamental question to begin with. Is the concept of debt a good concept at all? Well, since it is in existence for thousands of years, it does sound like a concept that has stood the test of time. However, what has happened is that time and again, it has been carried too far. And any idea, no matter how good, can cause problems when carried too far. 

Something similar seems to be happening to most developed nations around the world. Initially, most of them did use debt intelligently, thus enabling their economies to grow faster than what could have been possible without debt. But as Warren Buffett points out, leverage or the use of debt is highly addictive. And once someone profits from it, going back to more conservative practices becomes very difficult for that person. 

As is often the case, Buffett was bang on. No sooner did the western Governments profit from the wonders of debt; it became extremely difficult for them to turn conservative. And the end result is for all of us to see. So mired is the developed world in debt that there has perhaps never been a more uncertain period in the history of the global economy than now. 

However, a lady who answers to the name of Philippa Malmgren and who's also worked for the White House as an economist has made an attempt to lift the fog of uncertainty that has enveloped the global economy. Her prediction though is not for the faint hearted. She has argued that the vast majority of debt in today's world is almost impossible to be repaid. As per her, there seems no other choice than to default. However, what even she is unclear about is the manner in which the default will take place. 

Will the Governments just wake up one day and say that we will not be able to pay back all our debts? Or will it say that we will pay you back but you may have to take a bit of a haircut? Then there is default by way of inflation which the Governments can deny all along until it becomes too obvious to be denied anymore. 

Well, even if we don't know which of these routes the Governments will eventually take, a couple of things cannot be denied. First, the fact that until the debt problems are sorted out, Government bonds and currencies will be a bad place to park one's hard earned savings. And secondly, since fiat currencies will be in great risk of losing their value, it may not be a bad idea to make gold a decent part of one's portfolio. Agreed that it has had a strong run up, but as long as the policymakers continue to grapple with the problems of debt, gold may continue to inch steadily upwards.