Hugh Hendry, of Eclectica Asset Management, predicts that a downturn in China could provide western governments with the deflationary event they require to give themselves enough diversionary cover to open up the printing presses to pay off the otherwise unmanageable sovereign debts that the Eurozone, Japan, the UK, and the US, have accumulated over the past several decades. Mr Hendry’s report also provides an intriguing and detailed insight into the financial world’s upcoming crystal ball gazing, particularly with respect to the Far East. Here’s a quote from the report, to tempt you. The final sentence of the first paragraph is particularly interesting:
It is now commonly accepted that the magnitude of the financial problems confronting the world economy are so great that in all likelihood we will be confronted by a hyperinflation allowing sovereign debts to be paid off in worthless fiat currency. Just like the Bolsheviks in 1918 and 1919, the machine-gun of the Commissariat of Finance will pour fire into the rear of the bourgeois system. We do not dispute this outcome.
However, it remains our contention that policy makers can only gain the political legitimacy for such extreme behaviour if the world is once more confronted by a profound and debilitating deflationary event. We therefore find it a more profitable exercise to envisage what such a catastrophic event might look like.
Mr Hendry’s May 2010 report is available via two formats:
To see Hugh Hendry in action on a recent BBC Newsnight programme, alongside Jeffrey Sachs on the 26th of May, follow this iPlayer link before 11:19pm. The interview can also be found on YouTube.