Yet while the laws of finance can sometimes be violated with delayed penalty, they cannot be permanently overturned. The fact remains that central banks cannot repeatedly use easy money to fund serial debt bubbles without accumulating fatal consequences.

While undetected debt can be disguised as phantom equity through creative accounting in structured finance, it remains as liabilities in the real world that need to be reckoned with at the end of the day. Risk can be transferred globally system-wide to become less visible, but it cannot be eliminated by simply hiding it. Widely dispersed risk throughout the financial system will lead to an under-pricing of risk to give unsuspecting investors a false sense of security. In fact, thousands of small holes all over the hull will sink a ship faster than one big hole in one compartment that can be effectively sealed off. The result will be a sudden global financial meltdown when the massive Ponzi scheme of magical liquidity released by central banks is finally exposed.

from Henry CK Liu in the Asia Times OnlineThe Crisis of Wealth Destruction