The title for the chapter on Japan is “A Bug in Search of a Windshield.” While the currency of the Land of the Rising Sun is very strong as we write, there are real structural reasons, as well as political ones, that lead us to predict that the yen will begin to weaken. At first, it will be gradual. But without real reform in government

The point of no return for countries is when interest rates are rising faster than their growth rates. At that stage, there is no hope of stabilizing the deficit. This is the situation many countries in the developed world now find themselves in.

Interestingly, the only country in the world that currently fits the bill for hyperinflation is the United Kingdom, where 100 percent of the budget deficit was monetized by the central bank. Unsurprisingly, ever since, inflation in the United Kingdom has consistently overshot the Bank of England’s own forecasts. Apparently, they don’t see a

But you know the fact is that when you run these big debts, the problem is not with your children or your grandchildren, it’s in your lifetime. If you get to really high debt levels, you don’t make it. The market eventually gets concerned.

Let’s look at the example of Brazil, which is one of the world’s most recent examples of hyperinflation. This happened within our lifetimes. In the late 1980s and 1990s, it very successfully got rid of most of its debt. Today, Brazil has very little debt, as it has all been inflated away. Its economy is booming, people trust the central bank, and

As we will see, whether you call it the Great Recession or the Great Financial Crisis, what we are in is not a typical business cycle recession. It is a balance sheet recession. It is the end of the debt supercycle that started more than 60 years ago. The recovery time in much of the developed world is going to be measured not in months but in

Where do we stand on the issue of deflation versus inflation? We think we’ll have both. Deflation first, and then inflation. It will probably take further downturns and a greater collapse of borrowing and lending to induce even more extreme responses from governments. In the endgame, we see a very low likelihood that the Federal Reserve and other

In the depths of the recession in March 2009, 3.9 million people were hired and 4.7 million were fired. That gives us a loss of 800,000 jobs in one month, but notice that 3.9 million people were hired! So the economy produces jobs. The issue is at what price does labor clear. In a globalized economy, wages are falling for the unskilled as they

Today, interest rates are exceptionally low and the growth outlook for advanced economies is modest at best. This leads us to conclude that the question is when markets will start putting pressure on governments, not if.