How Countries Go Broke: Chapter 12 to Chapter 14

The following is an excerpt from an early draft from my new book, How Countries Go Broke, which is available for pre-order here.

View the previous installation of this study here.

Chapter 12: The History and Lessons from Phase 4, Since 2020—Pandemic and Big Fiscal Deficits Monetized (MP4)

In 2020, the world was hit with the COVID pandemic. While there is a government financial management principle in the US and in many other countries that monetary policy should be independent of fiscal policy and be targeted to pursue inflation and, in the US case, economic growth goals, because without that independence and that independent mandate there would be the politicization and degradation of the supply and value of money, the reality is that nearly every sacrosanct rule is inevitably tested by reality and starts to break down later in the Big Cycle. I call that economic-impact-necessitated change in monetary policy Monetary Policy 4 (MP4). MP4 is when there are coordinated moves between the central government and the central bank, where the government runs large deficits and the bank monetizes them. The dynamic inevitably arises when interest rate changes (MP2) and quantitative easing (MP3) no longer get the job done of helping conditions for most people and when the free-market capitalist system doesn’t get the job done. Naturally the capitalist system provides capital to those who are financially well-off, holding financial assets, and able to borrow, and it doesn’t provide capital to those who have the least and suffer the most. That is what happened in 2008. Because of the COVID pandemic, there was a need not just to make money and credit; there was a need to get it into the hands of specific people and organizations. Throughout history, MP4 has happened in similar conditions when there were very bad economic conditions and big wealth gaps so interest rate changes or quantitative easing alone would not do what is needed. It typically occurred late in the long-term debt cycle. In this case, it came in two big rounds.

Below are a few of the previously shown key charts brought up to date. They do a good job of painting the big picture both in terms of what has happened since 2020 and in putting what has happened in perspective within the Big Debt Cycle. As you can see, in the context of the big picture shown in the total chart, the weekly, monthly, and even annual changes seem trivial. I hope these charts help you see the more important bigger pictures.

Debt Levels and Debt Service

The central government spends a lot and hands out lots of money, getting itself into much more debt while relieving the private sector’s debt burdens.

Monetary Policy and Central Bank Health

As shown below, the Fed’s printing of money and buying of the government’s debt increased a lot from 2008 until late 2021, when the Fed began tightening to fight inflation. That was a pretty classic tightening in response to accelerated inflation. The tightening and higher interest rates led the Fed to lose money on all the bonds it had acquired. That is shown in the chart on the right.

Interest Rates

The rise in interest rates, while significant, was less significant than the rise in inflation (see the chart on the left), though it brought the real bond yield up to around its long-term average of ~2% (see the charts on the right and at bottom).

Breakdown of Interest Rates

The yield curve inverted; the discounted 10-year inflation rate stayed steady at around 2% as the real yield rose to about 2%. These moves reflected the tightening.

The Wealth and Income Shifts

Labor’s share of earnings continued to trend down to the lowest level since the 1950s, and the wealth and income shares of non-college-educated Americans continued to fall, so the wealth and values gap issue grew worse.

During this period, the US population and political parties became much more divided and more extreme, and there was a change in 2020 in leadership from the Trump-led right Republicans to the Biden-led left Democrats.

I am now going to look at what happened between 2020 and the present (i.e., January 2025) in more detail. Shifting from my Big Cycle perspective down to the short-term cycle that is transpiring within the long-term Big Cycle can seem disorienting. That dramatic shift from the macro of several decades to the relative micro of years and months can seem like we are moving from big important things to much smaller and less important things, but that is not true. They are both important since the short-term things affect the big long-term things as much as the big long-term things affect the short-term things. Most significantly for this period, it was the time of the pandemic that led to huge stimulation and coordination of fiscal and monetary (Monetary Policy 4), which raised inflation and markets and redistributed wealth which produced a big surge in inflation which led to a tightening that helped to bring down inflation which led to a relatively modest easing. It was a time of continued movement to greater political polarity, the political shift to the right, and back to a?Trump presidency.

More specifically:

• This short-term cycle easing began in 2020 in response to the combination of a) a COVID-induced economic crisis, b) large wealth gaps, and c) political moves to the left via the elections of a Democratic president, a Democratic-controlled House of Representatives, and a Democratic-controlled Senate. The easing took the form of huge government spending increases that led to huge government fiscal deficits and government debt sales that were much greater than free-market lender-creditors would buy, which required central banks, most importantly the Fed, to buy/monetize the debt. Other entities like banks and Japanese institutional investors also bought a lot of US Treasury debt. That stimulation increased the amount of money/credit/debt/spending by a lot. This massive MP4-type of coordination of fiscal and monetary policies that allows governments to borrow and direct money as it chooses because the central bank buys its debt with printed money is explained more completely starting on Page 37 of my book Principles for Navigating Big Debt Crises, which you can get here as a free PDF if you’re interested in knowing more and seeing past cases.[1] That is what happened in 2020-21; as mentioned, it has happened repeatedly for similar reasons throughout history though not in our lifetime.
• The 2020-21 debt monetization was the fourth[2] and the largest big debt monetization since the original big debt monetization/QE in 2008 (which was the first since 1933). Since 2008, the nominal Treasury bond yield was pushed down from 3.7% to only 0.5%, the real Treasury bond yield was pushed from +1.4% to -1%, and the non-government nominal and real bond yields fell a lot more (because credit spreads narrowed). Money and credit became essentially free and plentiful, so the environment became great for borrower-debtors and terrible for lender-creditors and led to an orgy of borrowing and new bubbles forming. My bubble indicator, which was at only 18% in 2010, rose to 75% at the end of 2020, showing the bubbles in companies and assets that had little or no profits and were funded by selling equity and/or borrowing money based on promises of doing well in the future and speculative buying fever. It was analogous to the Nifty Fifty bubble in the 1970-72 period, the Japan bubble of 1989-90, and the dot-com bubble of 1999-2000. That decline took interest rates so low that they couldn’t continue to fall and it benefited stocks a lot. I estimate that the interest rate decline raised stock prices about 75% more than they would have risen without that decline (compared to the pre-financial-crisis peak). In addition, profit margins nearly doubled on average as a result of technology and globalization, which also boosted profits and profit margins. Corporate and personal taxes declined, which also helped asset prices. From the post-crisis lows of 2009, the nominal value of US household wealth in financial assets (i.e., “paper wealth”) rose from $32 trillion to $99 trillion, so there was a tripling of paper wealth.[3]
• That money/credit/debt surge in 2020 produced a big increase in inflation, which was exacerbated by supply chain problems and external conflicts (the third of the five major forces that I will touch on later).
• That big increase in inflation led to the short-term cycle tightening by the Fed and letting their balance sheets contract by having maturing debt roll off rather than buying more of it. As a result of the Fed (and other central banks) changing their short-term debt cycle mode from easing to tightening, nominal and real interest rates went from levels that were overwhelmingly favorable to borrower-debtors and detrimental to lender-creditors to levels that were more normal (e.g., a 2% real bond yield). Since the tightening began, US Treasury bond nominal yields rose from 0.5% to over 4% and real yields rose from about -1.1% to about 2.5%, which hurt most asset prices, particularly those with weak or negative profits and/or needs for new equity funding. Naturally that shift especially hurt prices of assets that were in bubbles. My bubble indicator fell from 75% (in a significant bubble) to 35% (not in a bubble) and the bubble stocks in the index fell an average of 75%. As a result, the nominal value of wealth in stocks and bonds fell by ~12% in the US and the real value of wealth fell by nearly 18%, which were the largest declines since 2009. As cash went from “trash” to “attractive” and both short-term nominal and real interest rates were brought to levels that were more attractive than they were for lender-creditors and more unattractive than they were for borrower-debtors, and the yield curve inverted, these changes had the very classic effect of lowering the present values of most investment assets’ future cash flows and strengthening the dollar relative to the currencies of other countries whose central bankers were slower to tighten. In other words, the Fed’s quick movement brought US dollar-denominated cash to relatively attractive levels in relation to most assets, cash denominated in other currencies, and gold, which as usual, hurt interest-rate-sensitive sectors like commercial and residential real estate, as well as low or negative cash flow bubble companies, both public and private, though public more so. For example, the then-hot “FAANG” stocks and the tech-heavy NASDAQ fell from their peaks by around 45% and 33%, respectively. Non-public market assets—private equity, venture capital, and real estate assets—were not marked down commensurately as there was a great reluctance to accept the markdowns. Write-downs and having down fundraising rounds became too painful for both the companies and the venture capital and private equity managers in these markets, so there has been, to this day, a stand-off in which sellers and buyers can’t agree on prices and transaction volumes have plunged. It did not however weaken the economy as much as it typically would have because it was the central government that got into more debt rather than the private sector and it was the central bank that bought the debt and had the losses from holding it rather than the private sector. Also, the inflation was in wages and other compensation being earned as well as in goods and services being bought.
• Then inflation fell but prices stayed high, and the Fed and other central banks eased their monetary policies which supported asset prices generally. Artificial intelligence and artificial intelligence companies became the new hot things and are expected to improve the economy and life hugely like the new hot things that produced the industrial and digital revolutions and led to financial bubbles. With these changes came great differences in which stocks, companies, and countries did well. Also, the world capital markets changed with new types of investment products, though in the same sort of ways we saw before. For example, we are seeing new types of lending, like the development of the private credit market, which is the modern-day version of the junk bond market of the late 1970s early 1980s (though more customized, not securitized, more illiquid, and inclusive of early-stage companies). The large amount of money entering this type of lending helped to keep credit spreads down and fund more speculative activities.
• Regarding the internal conflicts over wealth and values between the populists of the right and the populists of the left, the intensity increased in most democracies, most importantly in the US. In the US, the divide between the political right and the political left became more extreme and the big rises in prices that came from the earlier described big fiscal and monetary stimulations by the US central government and central bank led to big price increases in goods, services, and financial assets. In the 2024 election, this inflation and other factors such as President Biden’s impaired acuity helped a) the rightist/capitalists/social conservative Donald Trump and the Republican Party to a decisive win over b) the leftist/socialist/social liberal Kamala Harris and the Democratic Party, giving Trump a mandate to undertake a big renovation of the central government and the country as a whole and prepare for some type of war with China and its allies. The potential great conflict that would have likely occurred if there was a close Trump loss was averted.

That brings us up to where we now are.

The Five Big Forces: Debt, Civil War, International War, Acts of Nature, and Technology

Every day we see news about these five forces. If you connect the dots from the past to the present, you can see them evolving along the lines of the Big Cycle template that was comprehensively explained in my book Principles for Dealing with the Changing World Order, my 40-minute video, and my 5-minute video. Government debt is obviously a big and growing issue. The thus-far nonviolent civil war between the rightists/capitalists/MAGAs and the leftists/socialists/communists/woke is continuing to intensify,?and in the?2024 US election the rightists/capitalists/MAGAs beat the leftists/socialists/communists/woke. Simultaneously and relatedly, the international war, particularly between the United States and its allies (i.e., the allied powers) and China and its allies (i.e., the axis powers), is intensifying. Similarly, the acts of nature force, most importantly climate change, is intensifying, and technology, especially AI, will have a big impact, both good and bad, that we won’t be able to imagine. These issues are interrelated. Most importantly, the internal fight within the US and the external fight with China will be affected by the technology war and the economic war (e.g., the need to raise military spending). For previously explained reasons, this looks quite like the 1936-38 period.

Because of the importance of China, I will now briefly review its whole Big Cycle since 1945 (when the new world order began) to 1949 (when its new domestic order began). Then I will look at Japan’s Big Cycle focusing most on how its Big Debt Cycle unfolded there because it provides another good case study to understand to gain the valuable lessons it offers. After that, I will look at what the key measures and calculations show in an attempt to peek ahead, and I will conclude with some suggestions.

Chapter 13: China’s Big Cycle from 1945-49 Until Now in a Very Tiny Nutshell

This chapter will take you about fifteen?minutes to read and it explains how the Big Cycle has played out in China, bringing you right up to the present, so I think it is worth the read for those interested in that.

To put China’s history in the context of its Big Cycle, I will summarize what has happened since the start of the new world order and China’s domestic order in the 1945-49 period with a very brief look at what happened before then.

Before 1945

To look at China before our current Big Cycle, I will first draw your attention to the following chart that shows the Big Cycles of China back to the year 600. This measure shows the estimated relative strength of China using many measures of strength as described in Principles for Dealing with the Changing World Order. Having studied these cycles, I have found them to be consistent with the Big Cycle template that I am touching on in this study and I comprehensively explained in that?book.

In the chart below, you can see China’s Big Debt Cycles since 1865, which is 26 years after the Century of Humiliation began until now. This 110-year period of humiliation (as the Chinese call it) was the period?in which foreign powers humiliated and exploited China, starting in 1839 with the First Opium War and in 1949 with Mao and the Chinese Communist Party coming to power and the founding of the People’s Republic of China. As you can see from this debt cycle, big debts were built up, wiped out, and built up again. As is typical, the debt wipeout corresponded with internal and external wars (in 1945-49); then there was a new order, and debts were built up again. However, through most of these years Chinese money and debt were not considered a good storehold of wealth.

While I will not delve into China’s prior Big Cycle that encompassed the Century of Humiliation, I do want to touch on it and convey that it profoundly affected Chinese leaders’ perspectives on foreign powers and what is now going on domestically. That part of China’s history is deep in the Chinese leaders’ psyche and has led to a belief that the way foreign powers are now fighting for their economic interests is broadly analogous to the way they did during the Century of Humiliation. More specifically, China’s leaders see the US operating as a hegemon to control the world order to serve its self-interests and trying to contain China in the part of the world that the US is not part of. Most significantly, they now see America’s handling of Taiwan as being even more intrusive than Americans saw Russia’s influence in Cuba in the 1960s because from their perspective Taiwan has been “indisputably and consistently” recognized as part of China by all the world’s powers since the end of World War II. Of course, Chinese leaders know that Taiwan is part of China but has not been incorporated back into China?. There is no question that Chinese leaders expect to eventually take control of Taiwan and parts of the South China Sea. In contrast, most Americans see China as a big and growing threat to the United States and the existing US-led world order, and they see the Chinese as being ideologically threatening communists who autocratically control their people and who are in a great ideological war with its capitalist, democratic, Abrahamic (i.e., Judeo-Christian-Islamic) approach. Some in both Washington and Beijing see this conflict as being the last and biggest great religious-ideological-economic-military war. Of course, this relationship is complicated and there are at least two sides to this story, which I won’t go into because it would be too large of a digression. I just wanted to make clear that Chinese leaders’ historical perspective?has a big effect on how they think and what they do. More broadly, they are very aware of big cycles and what caused them in terms of all five of the big forces that I’ve described.

The most important things to know are that China has had a rise that was more powerful than any other country in history to become a great power that is nearly comparable in power to the United States and that the United States and China have entered into a period of great power conflict. The next two charts show my aggregate readings of relative powers since 1825 and my US-China conflict gauge since 1963. As you can see in the first chart, China’s relative power fell a lot during the Century of Humiliation and then rose a lot thereafter, so that it is now close to rivaling the US. This is leading to a classic great power conflict between the US and China and their allies. On my website, www.economicprinciples.org, you can see much more detail on the measures that led to this reading for China.

Here is my very brief description of what has happened in China since 1945.

In 1945, World War II ended, which led to the creation of the new and current world order, and in 1949, China’s civil war ended, which led to the creation of the new and current domestic order.

From 1949 until 1976, China was a strictly isolated communist country run by the revolutionary leader Mao Zedong and his chief administrator, Zhou Enlai. During those years, China recovered slowly from World War II and its civil war because it was encumbered by rigid and unproductive communist economic policies, draconian controls that ensured that Mao and the Chinese Communist Party remained in power, and isolation from the rest of the world. In Big Cycles, it is typical for those who win power in a civil war to suppress the opposition to consolidate and solidify their power over the opposition due to fears that they will be overthrown. In Chinese dynasties, secret and violent overthrows of leaders have been?frequent that they are?viewed as a constant threat. That went on throughout Mao’s life. Mao had many enemies, most importantly capitalists from within China and the Soviet Union (starting in the late 1950s) from outside it. Marxist-Leninist communist principles and isolation from “foreign devils” shaped what China did and didn’t do during the 1949-76 period. During Mao’s reign, China’s development fell behind the rest of the world’s and there was a lot of suffering, especially in the Great Leap Forward and the Cultural Revolution. As far as dealing with foreign powers was concerned, Mao’s greatest fear was the Soviet Union, which became increasingly threatening in the 1960s and especially in the 1970s. As has typically been the case throughout history and is conveyed in the adage “the enemy of my enemy is my friend,” the common enemy brings countries together, which was true in this case, in which the common enemy of the United States and China was the Soviet Union. That led to the visits to China first by Henry Kissinger and soon after by President Nixon. Because I knew both Henry Kissinger and Ji Chaozhu well, I learned a great deal about both sides’ perspectives, which I won’t digress into here but will share in a book that I’m writing on China. Suffice it to say that common interests and a common enemy brought them together in 1972.

Mao and Zhou died in 1976.

As described in Chapter 10, Deng Xiaoping came to power in 1978 and changed just about everything with his “reform” and “open door” policies, which introduced a much freer, market-based economic system that brought in foreign talent and capital to enable the Chinese. He distinguished the new way with statements like “it is glorious to be rich” and when asked about his move to a more market-capitalist direction, he said, “It doesn’t matter whether a cat is black or white as long as it catches mice.” This was the recognition that the market-capitalist systems can “catch mice” (i.e., make riches) and that it is best to get rich and powerful first and then work toward “common prosperity.” These policies led to China having huge economic advances that changed not only China but the whole world. China went from being a poor, weak country to being a very strong one.

I saw all this up close from 1984 until now and, through my contact, got to see things through Chinese leaders’ eyes. I started to go to China in 1984 as a guest of CITIC, which was the only “window company” (because it could deal with the outside world in a capitalist way). They asked me to teach them about the world’s capital markets. China didn’t have any money at the time so I didn’t go for that; I went at first because I was curious, and I kept going until now because I loved the people and culture, and I could have a good impact on the country’s markets and economic development. That gave me an invaluable education as well as lots of enjoyment, so much so that I don’t dare describe it entirely because it would be too great a digression. What I am now going to describe is through the lens of my experiences. I watched that combination of powerful economic reform and opening up to the outside world take China from:

1)????? a classic unproductive communist country to

2)????? an effective “socialist market economy” to

3)????? the development of its capital markets and its version of capitalism to

4)????? the forming of a classic debt bubble that led to

5)????? a classic debt bust of the type that those who have their debt denominated in their own currency and have most of the debtors and creditors as their own citizens have.

More specifically, China experienced a classic upward swing in the Big Cycle that took China’s people from terrible poverty to much-improved living standards, with many people and the country as a whole gaining great riches and powers. At the same time, there were big increases in indebtedness and developments in the capital markets that created big wealth gaps and a bubble. I witnessed up close China go from grappling with its poverty and its geopolitical weaknesses to creating its market/debt reform and open-door policies, which created great increases in its riches and geopolitical power, to grappling with these greater wealth and geopolitical powers because with them came big wealth and opportunity gaps and big domestic and international conflicts.

In the Deng era, I saw the Big Cycle unfold up close as follows:

• China brought its inexpensive labor and high productivity gains to provide the world with attractively priced manufactured goods.
• The US and most of the world liked getting attractively priced manufactured goods on good terms, especially because China used a lot of the money it earned to lend money to Americans who bought the merchandise, which led to the following:
• China’s income, wealth, and power increased greatly. At the same time, the US overborrowed.
• In 2008, the US had a big debt crisis that put China in the position of not knowing if a large portion of its debt assets would be paid back and questioning the United States’ financial strength. I was in the midst of that situation and must say that the Chinese side handled the debt crisis with grace and understanding.
• In 2008 the Group of 20 (G20) countries, which was formed to be a more realistically representative group of powerful countries than the G7 given the shifts in world power, had its first summit to deal with the global financial crisis. They agreed to be very stimulative, so China and virtually all countries increased the credit they made available, which improved conditions, increased wealth gaps, and raised debt levels relative to income levels. As explained earlier, in the US the widening wealth gaps and economic suffering of those left behind created a change in sentiment to blame the Chinese for their job-loss problems. Those American workers who were most adversely affected were the non-college-educated men who Donald Trump appealed to. At the same time, American companies complained that they were not allowed to fairly compete as equals in China and that the Chinese were stealing Americans’ intellectual property.
• China’s skills and powers continued to grow, which gave China the resources to develop its military, geopolitical influence, and technological powers, which led it to become more assertive and seemingly threatening. In 2009 China asserted that the proper boundaries of its territory were far beyond what other countries claimed they were, pointing to an old map that demarcated the boundary with a nine-dash line. Though in 2016 the Permanent Court of Arbitration ruled against China’s claim, the dispute continues to today.
• President Xi and the new leadership team came to power in 2012. The main goals of the new leadership team were to reform the economy and eliminate corruption. Because of my expertise and my long and trusted relationships, I was able to participate in the discussions about these things in the third plenum (the new government’s big planning meeting after the top people are appointed). I experienced a very open and collaborative environment in which key issues were discussed, and we exchanged thoughts about them openly. Reforming the economy meant modernizing it to be more market-driven. For example, back then six major banks lent money to state-owned enterprises that were implicitly guaranteed by the government that had the printing press to guarantee them, and there was little lending to small- and medium-size enterprises. The leadership wanted to change that, so they sought to develop capital markets that improved access to borrowing, lending, and investing. I was closely involved with that, so I saw how those responsible for it thought about it and what they did. I found that for most of Xi’s first five-year term, there was a) an openness to outside thinking, b) a strong desire to further reform the economy by making it more market-driven and taking actions to build and reform the capital markets, and c) strong action taken to eliminate corruption. The senior leaders chosen were the ones who were inclined to do those things. Of course, how to do these things was debated, and some people benefited from the changes while others were hurt by them, which created divisions. I saw the following happen:
• Late in Xi’s first term there was a movement to consolidate political power around him via a move to “core leadership.” If you think politics in the United States is brutal, you should see politics in China. This became most clear in the leadership changes that accompanied the shift from the first to the second five-year term under Xi.
• Up until then there were remarkable accomplishments—by many measures the greatest in human history. In the years since I first started going to China in 1984, China’s per capita income increased by 20 times, the average life expectancy increased by 12 years, and the poverty rate fell from 81% to less than 1%.
• In 2015, Xi put out his 2025 plan, which described the need for China to rise and dominate certain industries. This was viewed as aspirational by the Chinese and threatening by the Americans. China could no longer “hide power.” Also, China became more threatening as it grew a lot in world trade, as its riches grew, as it asserted itself more geopolitically, and as it “stole” intellectual property. At this time, Americans began to blame China for their economic problems and viewed China as a greater threat.
• Due to middle-class job losses in the US, which were attributed to Chinese imports and China’s greater assertiveness internationally, the pendulum of sentiment toward China swung from positive to negative.
• When President Trump came to power in 2017 and President Xi began his second term in 2018, the great power conflict began in earnest, starting with trade negotiations that evolved into tests of power and a type of cold war. Then in 2019-20, COVID emerged. At the same time, China’s debt bubble and wealth gaps grew, and relations with the US worsened, so there was a classic convergence of big debt/financial, internal order, external order, acts of nature forces into a risky mix. Also, the Taiwan issue was (and still is) a very big contentious issue because China expected the One China unification promise to be delivered on while there seemed to be movement toward more independence. This has been intensified because most of the advanced computer chips in the world were (and still are) produced in Taiwan, and whichever country controls them controls the most powerful technology in the world. Seeing all those contentious domestic and international issues evolve, in addition to his understanding of history, led President Xi to say that there is a “big 100-year storm” on the horizon.
• In 2020, much of China was shut down due to COVID, which raised some internal ire about how it was being handled.
• In 2021, a bit more than halfway through Xi’s second term, China’s domestic debt bubble burst. Xi emphasized the importance of “common prosperity” and did not like how rich businessmen were arrogant and exerted influence over how China was being run, so the government took some seemingly arbitrary actions that were not consistent with the type of rule of law and traditional property protections that investors thought were important.
• At the beginning of President Xi’s third term in October 2022, China’s leadership shifted from reform-minded globalists to loyal communist nationalists with tighter controls over possible opposition, and it shifted from being highly free-market-oriented with capital markets flourishing to being more Mao-like communist as internal conflict and the international great power conflict intensified.
• At this moment, China is now a country that is 1) in a big debt crisis while it is turning to more traditional communist economic policies at the same time as there are great advances continuing, while 2) there is increased internal conflict that is being contained by more strict, autocratic policies directed by the president, while 3) there is increased international conflict with the United States and great changes in the world which China is increasingly influencing, while 4) climate change is happening and likely to have a big effect on China, while 5) it is vying to lead and win a technology war that neither China nor the United States can afford to lose.
• Now, the Trump administration has come into power in the US, which also has 1) big debt issues, while 2) there is increased internal conflict leading to more strict, semi-autocratic policies directed by the president, while 3) there is increased international conflict with China and great changes in the world order with the US under Trump shifting from being a global leader to becoming an “America First” nationalistic participant in the changing world order, while 4) climate change is likely to have a big effect on it, while 5) it is vying to lead and win a technology war that neither China nor the United States can afford to lose. So, we are now seeing a squaring-off of these two great powers, along with their allies lining up behind them and their ideologies, which looks a lot like what we saw in the mid to late 1930s when the world was at a similar stage in the Big Cycle. What will happen in the US and China and the world will be another test of the relative strengths of these two great powers and their two very different approaches and systems. These two great powers are now in a war that fortunately for the world hasn’t yet turned militaristic. This is shaping up to be the greatest great powers conflict ever. A very senior Chinese leader many years ago explained to me how differently these two sides fight war; he explained to me how Western countries follow a Mediterranean approach to war, which is head-on, while the Chinese use a much more subtle, deceptive approach along the lines of what was described in The Art of War by Sun Tzu, which was written about 2,500 years ago. Over my many years and through my intimate contacts in China, I learned about the power of such timeless principles that affect the Chinese leaders’ approaches to dealing with the Chinese people and the outside world.

In ultra-brief summary, below I look at what happened in China vis-à-vis my Five Big Forces template:

1)????? The Big Debt Cycle force led to China’s debt rising relative to incomes, though not relative to liquid assets until 2009 (coming out of the GFC). Then it, especially local government, corporate and real estate debt, started to grow into a bubble that burst in 2021, which began a deleveraging. Like Japan’s, most of China’s debt is denominated in its local currency, which allows it to engineer a “beautiful deleveraging,” which Japan failed to do. We don’t yet know whether China will manage this well, though it now appears to me that China has been slow to deal with it and is in the late part of the Big Debt Cycle that is most analogous Japan’s in 1990.

2)????? The internal conflicts and internal politics force led the government to tighten controls, leading to an environment of more fear, which has slowed decision making, which has chilled the economy and hurt capital and people flows, which has contributed to economic slowness in China. It has moved about halfway back toward Maoist-Marxist communist policies.

3)????? The external conflict force led to the classic great powers conflict with the United States, which has hurt flows of trade, capital, and people and led to greater military preparation and risk.

4)????? The acts of nature force took the form of the COVID pandemic problem that started in late 2019 and continued through 2022, which strained the population’s satisfaction for how leadership was handling it which contributed to the government increasing controls. China also used its remarkable inventiveness, its government-directed economic policies, and its advanced manufacturing abilities to make such great strides in solar and wind power that it has become the world’s most cost-effective producer of these items, which is another story that I won’t digress into.

5)????? The technology force led China and the US to both make advances in a number of new technologies, most importantly in advanced AI, with China seemingly having fallen behind the US in the most advanced chips while at the same time excelling in some other areas, most obviously in advanced manufacturing.

So, in brief, in recent years four out of the five major forces (i.e., debt/economic, internal conflicts, international conflict, and the acts of nature) have become increasingly threatening to China, and the fifth, the technology force, appears to be a mixed picture because great advances have been made while China looks to have fallen behind in some existentially important areas. It seems inevitable that the US and China will face another test of their relative powers and their approaches to a) capitalism and democracy versus b) communism and autocracy.

China’s Big Debt Cycle in Some Charts

I am now going to show you a bunch of charts that do a good job of painting China’s debt picture, but I won’t get into an analysis with a commentary because a more complete proper analysis would be too much of a digression for now. Also, notably not all the debts are properly accounted for, so these charts are meant to just be broadly indicative.

As shown, China is in the part of the cycle where the non-central-government debt burdens have become excessive and a problem so that the central government and the central bank will have to come to their aid. Fortunately, most of the debt is denominated in local currency and most of the debtors and creditors are domestic so that the central government and the central bank have much greater ability to manage this situation than if they weren’t. However, China’s currency (the renminbi) is not a widely held reserve currency, so not an effective storehold of wealth. Ideally, Chinese policy makers would have both the ability and the courage to swiftly engineer a “beautiful deleveraging.” However, as previously explained, such adjustments are initially painful because they cause great shifts in wealth and, if not balanced properly, can just shift the debt burdens, worsen the long-term central government debt burdens, and/or so severely undermine the value of the currency as to do great damage to the capital markets and through it to the economy. The Japanese case, and the next chapter on it, provides some valuable lessons for them (as well as for other policy makers, investors, and businesspeople).

As shown below, China’s debts are reaching new highs, even as the economy is weaker than desired. That’s been the dynamic in Japan over much of the last couple decades as well.

The chart below on the top left shows the levels of 10-year bond yields relative to the stated one-year and three-year average headline inflation numbers. Actual deflation in both items and in investments held has been worse than is shown here. As shown in the chart at bottom, nominal government bond rates are approaching zero, so other “non-conventional” fiscal and monetary policies will likely have to be used. Also, as shown in the top-right chart, real bond yields are about 0.5%, so a) they are relatively unattractive in a normal environment but b) still relatively attractive in relation to a deflating economy with falling asset prices, and also c) relatively unattractive relative other countries’, especially the US dollar bond market’s interest rates.[4]

As shown below, the yield curve (as of January 2025) is inverted, which makes cash relatively attractive at a time when that encourages a holding of cash which leads to a “pushing on a string” issue. I previously conveyed my thinking about this in Chapter 1 so I won’t repeat it. Also as shown, various measures of liquidity (total social financing, money supply, total loans from the financial sector) continue to rise without producing a rebound in real economic activity, another sign of “pushing on a string.”

Chapter 14: The Japanese Case and the Lessons It Provides

This chapter will be relevant to those who are interested in studying the mechanics of Big Debt Cycles and it probably won’t be of much interest to those who are not. That is because it shows how a heavily indebted reserve currency country handled its debts with reference to the earlier-described template. Most importantly, this Japanese case study shows the Big Cycle in Japan transpiring in the very classic way that I described, with the cause/effect relationships working as I described. In this case study, you will see that for 23 years Japanese policy makers did the exact opposite of what I described should be done to execute a beautiful deleveraging—i.e., after their debt bubble burst they did not restructure the debts for nine years and they didn’t drive interest rates below inflation rates and nominal growth rates for 23 years, so they had deflationary depressing conditions until 2013 when there was a fiscal stimulation accompanied by a great debt monetization and great depreciation in the value of their debt assets and currency. While this Japanese case study tells a very interesting story for those who are interested in seeing how the economic machine works, it does get a little technical which is good for those who want that, but those who don’t can skip it by just reading the highlights in bold which will take only about five minutes.

Japan’s story, like China’s story, is a very interesting one that extends back to its Big Cycle before the one that began in 1945. To put Japan’s history into the clear context of its Big Cycle, I will summarize what happened since the beginning of the new world and domestic orders starting in 1945 with a very brief look at what happened before 1945. I’m doing that because, as with the China story, the Japan story since 1945 would be greatly lacking in context if we didn’t at least briefly touch on the Big Cycle dynamics of the 100 years before.

In brief Japan, like China, was isolated from the rest of the world until the foreign powers—in Japan’s case, US Commodore Matthew Perry and his American fleet—came and demanded to trade with Japan. Because the foreign power was greater, that led to the collapse of Japan’s 250-year-old domestic order, which was under the Tokugawa (family) shogunate (government headed by a family). Because of the realization that the foreign, more modern approaches were better, that government was replaced by a new government in 1868, which largely copied the Western powers’ approaches (similar to what Deng Xiaoping did). It was a constitutional monarchy that was led by a new emperor (Meiji). That led to the modernization of Japan, achieved largely by following the Western style of education, economy, and military. These policies of reform and opening up that copied the policies of the more modernized Western powers, like those in China under Deng, led to Japan becoming a great power. Then it fought and defeated its two rival regional powers—China in 1894-95 and Russia in 1904-05 which was followed by the annexation of Korea in 1910. Then in 1914-18 it decided to take advantage of Germany’s fighting in Europe in World War I to take over German territories in Asia. In the 1930s, it invaded and took over China’s Manchuria (1931) and more of China (1937). Then it got into a geopolitical conflict with the United States that had similar trade and sanction conflicts to the US-China conflict today, with oil then being like chips now. This led to Japan attacking the US naval fleet at Pearl Harbor, which led to a war with the United States that Japan lost due to the United States inventing a great new and powerful technology that could be used for peaceful and war purposes—nuclear power. Because of Japan losing the war, all Japanese money and debt was destroyed, and Japan was occupied and reconstructed by the United States from 1945 until 1952.

The chart below shows the total debt-to-GDP ratio going back to 1870. It shows both the Big Debt Cycle prior to 1945 and the one since. As you can see, there was the big run-up in debt in the 1930-45 period before and during the war, the debt wipeout that brought it down to low levels until 1970, the big debt bubble leading to the debt bust in 1989-90, and the rise in that ratio until recently. That is what the Big Debt Cycles looked like since 1870. As is normal when looking at the Big Debt Cycles, the short-term debt and economic cycles are imperceptible.

Since 1945

In brief, from 1945 through 1990, Japan rebuilt itself to become the second greatest economic power in the world and in the process built up a huge debt burden that burst in 1989-90, which has had a huge weakening effect on Japan ever since. After World War II and with the US’s blessing, Japan chose not to build up its military power and instead chose to be a protectorate subject of the United States. I will now focus on the time from the debt bubble bursting until now because that is the most relevant period to understanding the part of the Big Debt Cycle that this study is focused on. The lessons that examining this part of the Big Debt Cycle provides in helping us understand other cases—most importantly the current cases in the United States, China, and Europe—are very valuable. Since I am focused on the deleveraging part of the Big Cycle, I won’t cover the 1944-90 period and will focus on the post-1990 period.

The Big Debt Cycle Since 1990

The Japanese government’s handling of its debt problem from 1990 until 2013 exemplified exactly what not to do. It was the exact opposite of what I described should be done to execute a beautiful deleveraging even though it had the capacity to execute a beautiful deleveraging because almost all of its debt was denominated in its local currency and almost all of the difficult debtor-creditor relationships were between Japanese parties, plus it was a net creditor to the rest of the world. More specifically, policy makers did not restructure their debts so the debt burdens lingered on bank and company balance sheets making them “zombie institutions,” they held to employment and cost policies that were rigid so they didn’t effectively cut costs and adapt, they didn’t make interest rates low in relation to both nominal growth rates and inflation, and they did not monetize their debts until after there was deflation and interest rates were near zero in 1995. For nearly two decades, the amount of fiscal and free-market policy adjustments and the amounts of monetary stimulus and debt purchases were woefully insufficient to engineer a beautiful deleveraging. As a result, until 2012 Japan had continuous deflation and economic stagnation as companies and people didn’t have the previously described financial conditions to get this debt burden crisis behind them. The Japanese government did not deal with its non-performing loan problem until 1999 (so for nine years after the debt bubble popped) when the government finally forced the banking system to restructure its debts and injected huge amounts of capital into the banks, and it didn’t monetize debt and bring interest rates significantly below nominal growth and inflation rates until 2023. Additionally, the demographics of Japan’s aging population (e.g., in 1990, 12% of the population was over 65 and 69% of the population was working-age while now 29% of the population is over 65 and only 59% is working-age).

Fiscal and monetary policies changed greatly and appropriately when BoJ Governor Kuroda and Prime Minister Abe came to power in late 2012/early 2013 and initiated their “three arrows” policy to 1) increase the money supply, 2) boost central government spending, and 3) enact economic and regulatory reforms to make the Japanese economy more competitive, which, as previously described, are classically the best policies to negate deflationary, depressionary forces. As a result, from 2013 through 2019 there was not deflation and there was low positive growth (0.9% per year) and the beginning of a healing period, though the deflationary and depressing psychological conditions lingered. The psychological overhang of the 23 years of debt depression has had lasting negative effects on the country’s strength and vibrancy that had characterized Japan prior to 1990 and many times throughout history.

Since 2013, extremely large debt monetization and fiscal deficit stimulus (5% of GDP deficits on average) and extremely large central bank buying of Japanese yen debt (the BoJ now holds government bonds worth >90% of GDP) took place, which pushed interest rates 0.9% below the nominal growth rate and 1% below the inflation rate on average, and depreciated the yen, all of which was very stimulative. The combined lower interest rates and currency depreciation led to Japanese government bonds being a terrible storehold of wealth, losing 45% relative to US bonds and 60% relative to gold. These and other actions provided an average interest rate that was about 2.2% below the US rate and depreciated the currency by an average rate of 5.5% per year in real terms versus USD. More specifically, since 2013, the cumulative return of a Japanese government bond relative to a US government bond was -45%, which is almost entirely attributable to currency depreciation, since the lower carry/accrual from Japanese bonds was entirely offset by price gains (roughly +20%) due to falling Japanese yields. At the same time, Japanese inflation averaged only 1.1% per year relative to US inflation of 2.7% per year because of domestic deflationary pressures. The principle “don’t own government bonds at such times” should resonate.

Let’s look at what happened more closely.

Since 2013, while there was modest inflation of 0.8% per year in average worker compensation in yen terms, the big yen depreciations, along with greater wage gains in other nations, made them more competitive. For example, there was a total decline of 58% in the cost of a Japanese worker relative to an American worker since 2013. Similarly, other domestic items in Japan fell a lot in cost relative to the costs in other countries. That helped to make Japan more competitive. These changes are shown in the charts below.

These low interest rates reduced debt service costs a lot—since 2013 Japanese interest debt service fell over 50% (and has fallen over 65% since 2001), making it much easier to service the debt.

Still, the Japanese debt during this period increased by almost 10%. To neutralize its effects, the Japanese central bank bought over half of all the government debt and absorbed the debt service costs, which it monetized. The declines in interest rates engineered by the BoJ also contributed to the debt relief (though more of that benefit occurred even before Governor Kuroda took the helm, as short rates had already hit zero).

The following charts show these trends. The bottom left shows the substantial declines in the interest service actually paid by the government to the public, and the other charts show how you got there: through central bank purchases and large declines in interest and principal payments.

As a result, remarkably the massive increase in debt that occurred in this period was concurrent with an improvement in Japan’s central government balance sheet. Net assets (government assets minus government liabilities) are now 20% better in dollar terms compared to 2013 because the Bank of Japan accumulated dollar reserves (primarily in the 2001-12 period) and Japan’s debts as measured in dollars are not up as much due to the yen currency depreciation.

Who were the winners and who were the losers? Clearly the big losers were the Japanese debt holders including the Japanese central bank. The Japanese bond holders lost a total of 6% in real terms (as real yields were generally negative), 45% versus if they had instead held US bonds, and 60% relative to the old “hard money” of gold. Below is a chart of the real return of just holding JGBs as a Japanese investor (in local currency) and their performance relative to US bonds and gold.

At the same time, there has been a big deterioration in the BoJ’s balance sheet. These losses will be very large if Japanese real and nominal bond yields rise to more reasonable levels (e.g., 2% and 3% respectively).

For example, if Japan had a 3% rise in real interest rates (from -0.3% to 2.7%):

• The BoJ would experience a 30% of GDP mark-to-market loss on its bond holdings and would be in a seriously negative cash flow situation of around -2.5% of GDP.
• The government would see the deficit widen from roughly 4% of GDP to around 8% of GDP over the next 10 years due to the increase in interest costs (not including any outlays to cover central bank losses). The government debt level would surpass its post-WWII peak, rising from 220% to 300% over the next 20 years.

• The combined cash flow need across the central bank and the government would be around 5-6% of GDP per year, which is huge. That would have to be handled through debt issuance, money printing, and/or deficit reduction. If it was financed by central bank printing, this would be the equivalent of another round of QE in terms of expansion of the money stock, not including any additional printing needed to offset selling by the private sector.
• Resolving it would require even greater write-downs in debt and devaluations of the currency—with Japanese people becoming relatively poorer in the process—until Japan is competitive enough to begin a new cycle.

Key non-tradable goods—local wages, local services, local housing—have seen essentially no price increases in yen terms and significant deflation in global currency terms since 2000. The affordability of rent (rent compared to wages) has barely moved. This is despite tradable goods and commodities being way up because of the currency’s depreciation. A decent boxed meal bought at a convenience store used to take 10 minutes of work to afford, now it’s 16 minutes (up 60%+)—around a 2% inflation rate for that item (in wage terms). And Japanese workers are more competitive than ever.

That said, Japan has seen dramatically lower dollar incomes, meaning purchases on imports are much more expensive. Using the most apples-to-apples comparison (dollar GDP per capita), individuals in Japan used to be richer than US individuals, now they are some 60% poorer. This is obvious to any Japanese person traveling abroad.

For a different angle of who the winners and losers were, it’s helpful to take a look at how prices have changed in Japan at a very granular level because it provides a window into what it’s like to earn, spend, and save there. The table below provides a lot of details, but to summarize:

• Since 2000, the yen is down 30%. If you were a US investor who kept their money in yen versus dollars earning the dollar interest rate, you’re down 84%.
• Your returns for holding unhedged Japanese bonds versus US bonds were slightly better (but still very bad, down roughly 70%) and slightly better (but still very bad) for unhedged Japanese equities versus US equities (down around 67%).
• Meanwhile, prices in Japan (aggregate CPI) are up 10%—much less than in the US, where prices are up 90%.
• At the same time, all fiat currencies have devalued versus goods. The dollar has depreciated about 50% in the last 24 years.
• Whereas total average inflation is similar across major categories, the composition of inflation is very different. In Japan, there has been deflation in non-tradables—housing and labor especially—while prices of tradable goods (i.e., things you can purchase from abroad like electronics, toys, oil, etc.) have soared with some key tradable commodities up 3x+ in yen terms.
• Non-tradables are about flat in price while tradable commodities are up 2-10x (average up 3x).

• All of this is largely the inverse of what happened in the lead-up to the bubble (1980-90), where overheating growth and strong capital inflows led to both significant non-tradables inflation (+40%) and yen strength (+70%). These changes reflect the changes in the big cycle in Japan.

The following charts convey the picture for a Japanese worker. As shown, in the past 25 years, typical worker wages were relatively flat in yen terms, just shy of 400,000 yen a month, but fell significantly in dollar and world currency terms. In other words, while the average Japanese worker used to make the equivalent of $3,500 a month, they now make about $2,500. In gold terms, they used to earn 13 ounces of gold equivalent a month; now it’s 1 ounce.

You can also see the impact by looking at some real prices of items that mix commodities with heavy doses of domestic labor. The data on costs of vehicles tends to wiggle a lot, but roughly speaking a domestically made car used to cost eight months of labor, and now it’s nine months. A convenience store boxed lunch used to take 10 minutes of work to afford, now it’s 16 minutes (up 60%+). Going to a theme park used to cost a third of a day of labor, now it’s a half a day.

The charts reflect the dramatic changes that took place and are likely to continue to take place due to the previously described typical mechanical process of the Big Debt Cycle in which the country has a lot of debt denominated in its own currency and it is a reserve currency country.

Remarkably during this period, there were no really big internal or external conflicts, though Japan is now preparing for war with China (though it doesn’t want it) as the United States’ most important ally in the region.

How Did Japan Get Here?

I want to highlight six dynamics at play in Japan that helped bring about these sets of winners and losers. Here is what happened:

1.????? The government deficit spending floods the private sector with cash, aiding in private sector deleveraging.

2.????? The central bank monetizes the debt to keep long rates low, lower debt service, and boost demand. Government debt burden ex-CB holdings begins to fall as a percent of GDP.

3.????? And the resulting currency depreciation acts as a sort of tax on foreign investors holding unhedged domestic bonds and domestic investors who didn’t invest outside the country, while it lowers the government debt burden as that falls in value when measured in foreign FX and gold.

4.????? Domestic savers are similarly taxed, though to a lesser degree because even, though their buying power abroad decreases, that fall in buying power isn’t as much domestically.

5.????? The country gets more competitive, as both assets and factors of production get cheaper.

More specifically it happened in the following way.

Dynamic 1: Public sector deficit spending floods private sector with cash, helping the private sector delever.

The following chart shows that dynamic, with public sector debt rising from roughly 1990 to 2020, during the period of private sector deleveraging. After that government leveraging, Japan was left with the highest government debt levels of any major country. There are many historical cases of other governments struggling to deal with their debt burdens. Japan was able to manage it because of the second dynamic.

Dynamic 2: The central bank monetizes the debt to keep long rates low, lower debt service, and boost demand. Government debt burden ex-CB holdings begins to fall as a percent of GDP.

The following table shows how Japan’s debt service (interest and principal repayment) in yen effectively fell by around 7% during a period in which debts rose by nearly 30%. About half of that was because of lower interest rates (shown in the chart further below) and debt being termed out. The other half was because of BoJ purchases of the debt.

Dynamic 3: And the resulting currency depreciation acts as a sort of tax on foreign investors holding unhedged domestic bonds and lowers the government debt burden in foreign FX and gold.

BoJ actions significantly contributed to declines in the yen, as shown in the chart below.

This meant that holders of yen-denominated assets saw their holdings lose a significant amount of value. The charts below compare the returns of yen bonds to USD bonds, and yen currency to USD currency. In both cases, holders of yen lost more than half of the value. This is not dissimilar to a default.

This also has produced a deleveraging of Japanese government debt as measured in other currencies. Measured in dollars, debt service is down since 2001, a period with rapid government borrowing. Measured in gold, debt levels are down some 80%.

Dynamic 4: Domestic savers are similarly taxed, though to a lesser degree because, even though their buying power abroad decreases, it’s not as bad domestically.

We’ll look at this point through two lenses:

• Holders of Japanese government debt without the currency exposure have done OK, even while the assets have done quite badly in USD terms.

• Japanese households have seen muted inflation over the period (discussed in more depth above). The weak economy has kept the currency declines from translating into much domestic inflation.

Dynamic 5: The country gets more competitive, as both assets and factors of production get cheaper.

In the following charts, note how just about everything in Japan became much cheaper and how that attracted FDI inflows.

Asset valuations have mirrored this as well. Japan went from one of the more overvalued markets (at least as measured by imperfect statistics like P/Es) to inexpensive relative to the US.

Japan’s Big Debt Cycle in Some Charts

As with China, we’ll end this chapter with charts that are more zoomed out, which helps show the big cycle transpiring over many decades.

The first chart below shows Japan’s Big Debt Cycle in the form of the government’s debt-to-GDP ratio going back to 1870; that way you can see two big cycles, though we will focus on the second.

The next chart shows the amount of central government debt service as a percent of the amount of revenue the government took in. In it you can see the debt busts that happened when it exceeded 150%, and you can see how, in recent years, it has risen toward—but stayed below—150%.

I will now shift to a post-1950 perspective. Through these charts, you can see how the last couple decades are best characterized by “pushing on a string,” with nominal rates falling below 0%, real rates a bit negative[5], large amounts of money printing, and the yield curve just slightly upward-sloping. Corporate spreads have stayed low (for perspective, as of this writing they are around 1% in the US and 0.6% in Japan for Baa-rated companies). All of these are characteristics of very stimulative monetary policy, especially in the last decade or so. Despite the stimulative policy, inflation has remained much lower than policy makers have generally desired, slipping in and out of deflation.

The highly stimulative policy comes with risks. So far, the BoJ has remained profitable: the bonds they’ve bought (with printed money) haven’t seen big sell-offs, and the interest they’ve had to pay on excess reserves has remained quite low (because of low short-term interest rates). But if rates rise, the BoJ will become significantly unprofitable, fast. That recently happened to the US Federal Reserve, producing moderate manageable losses—up to 0.5% GDP. But with the BoJ’s monetary base at around 5x the Fed’s, losses could be much more meaningful.

Note: My Failure to Cover a Lot

While it might seem like I covered a lot in this review of the period since 1945, what I left out was vastly greater than what I included. While I briefly looked at what happened in the United States, China, and Japan, I showed virtually nothing of what happened in the other great developed powers (e.g., European powers), Middle Eastern countries, and I barely mentioned most emerging countries, also known as the “Global South” (e.g., India, Africa, Latin America, Asia, and Oceania), which account for 85% of the world’s population. They all had and are having their Big Cycles. I am excited to say that with AI I am beginning to get my head around it all, and I have reason to believe that my digital self will evolve way beyond me to deal with these and communicate with you about them. By the way, if you are interested in communicating with my digital self, you can get Digital Ray here.

Of the many countries I haven’t been able to mention, it is worth taking a moment to focus on rising countries with strong fundamentals (as reflected in my strength gauge that consists of 18 measures), like India; ASEAN countries such as Singapore, Indonesia, and Vietnam; the UAE; and Saudi Arabia, which have benefited by being neutral vis-à-vis the power conflicts. A number of them are at take-off points in their developmental cycles because their people, governance systems, and capital markets are approaching being capable of competing in ways that didn’t previously exist. Also, the conflicts between the United States and China are making the United States and China less desirable, which is driving capital, businesses, and talented individuals to these places. If you want to look at them more closely, I recommend that you look at my Great Powers Indices that summarizes the conditions and prospects of the top 24 countries. They are available for free here.

The views expressed in this article are mine and not necessarily Bridgewater’s.

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[1] In that book, I labeled these policies MP3.

[2] Counting QE1, QE2, QE3, and then QE during COVID lockdowns.

[3] Household wealth here is the difference between total household financial assets and total household liabilities (using data from the Federal Reserve).

[4] China does not have inflation-linked bonds, so I am showing an estimate of real yields based on nominal yields and an estimate of market?10 year inflation expectations.

[5] On the chart below, I am showing real yields since the creation of the Japanese inflation-linked bond market. Prior to this, I am showing an estimate of real yields based on nominal yields and an estimate of market?10 year?inflation expectations.