We think we can take it as a given that there is another recession in front of the United States and/or Europe at some point. That is the natural order of things. But it would be better to have that inevitable recession as far into the future as possible, and preferably with a little inflationary cushion and some room for active policy responses. A

In the United States, we ran up unfunded pension deficits at many local and state funds, to the tune of $3 to $4 trillion and rising. We have a massive (multiple tens of trillions of dollars) bill coming due for Social Security and Medicare, starting in the next 5 to 7 years, that makes the current fiscal crisis pale in comparison.

As part of its QE program, the Bank of England has so far purchased £200 billion ($320 billion) of U.K. sovereign debt (known as gilts). It may yet buy more. The Bank of England now owns almost a third of all outstanding gilts, as Figure 13.4 shows. This dwarfs the QE programs in the United States or Japan.

To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys.

A critic of this strategy for getting rid of our debt could point out that no one would lend to us again if we did that. Hardly. Investors, sadly, have very short memories. Markets always forgive default and inflation. Just look at Brazil, Bolivia, and Russia today. Foreigners are delighted to invest in these countries.1

Job Creation and Loss by Firm Age (average per year, by year-group, 1992–2005)

That being said, at the bottom of the next U.S. recession, we think emerging market countries could see their economies and stock markets finally decouple from the United States, and at that point, they could become the trade of the decade. We suggest that investors use the time to find specific stocks and not just country ETFs, or find someone who

The big difference between Japan or the United States and countries that have experienced hyperinflations is that the central banks are not monetizing most of the deficit. If they were to do that, then we would be one step away from paying quadrillions of dollars for a stamp or a sandwich

If great contractions are caused by excessive debt and these contractions lead to deflation, then the Fed can only temporarily offset the inevitable deflation. Quantitative easing (QE) will only work by inducing another borrowing and lending cycle. This will mean that the economy will add more leverage to an already overleveraged economy. Thus, the