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The Great Depression that started in 1980 is ending along with WW III.

The US debt and GDP growth from 1980 to 2010 is very similar to the 1920 to 1950 time period. By projecting similar debt and GDP growth as in 1950 to 1980 30 year period we arrive at the following number for 2040 (see hyperlink below for spreadsheet):

http://www.flickr.com/photos/shakercherukuri/6143679891/

US Debt in 2040 = 50 Trillion (Nominal)

US GDP in 2040 = 140 Trillion!!! (Nominal)

So why is the next 30 years going to be similar to the 1950 to 1980 time period?

1) WWIII is ending. Financial Pearl Harbor has lead to currency wars. We are approaching the climax. Euro will be replaced by Yuan as the second reserve currency. The Euro zone’s contribution to world GDP will diminish. BRICS will be larger than Euro zone soon.

2) Winners will be people who own Assets and make money via capital gains, dividends, real estate etc. Loosers will be everyone else on fixed income (Social Security and/or fixed wages).

3) The new boomers are in BRICS and other emerging BRICS.

4) US will arrest the growth of debt by limiting the growth of entitlements, depreciating the dollar and inflating the assets (same as in 60s and 70s). It is already happening.

5) The US stock market, 80% of the market cap is the S&P 500, will benefit from the deprecating USD since the majority of the S&P 500 corporations have most of their receivables in other currencies and most of the payables in USD. The new healthcare law is also a huge boon for the S&P 500 corporations (see item 6 below).

6) The healthcare law is actually a huge boon for the free marketeers since there is no public option and people need to buy private insurance. This whole fight against this new law is a farce. The insurance industry and the corporations got exactly what they wanted with some minor concessions. Lifestyle change is what is needed to fix the big four root causes (diabetes, high blood pressure/heart disease, obesity, bad diet/no exercise) that are responsible for 80% of the cost. The insurance companies in collaboration with the corporations will enforce this via incentives. Most of the regulations will impact small business that do not provide any healthcare to their employees. This requirement will limit their ability to compete with the S&P 500 corporations.

7) US consumer will eventually benefit once the inflation shows up in the wages (most likely in 2020 and beyond trickle down) and their major expense, the mortgage, is fixed at the current low 4%. So lock in those rates!!

The new entrants to the US labor force in 2020 and beyond will not be able to afford homes. They will have to settle for apartment like most of the consumers in rest of the world. The $3000 automobile and $30,000 homes of the 50s are $30,000 automobiles and $300,000 homes today. Most of the US middle class has still been able to buy those due to credit expansion. In the not too distant future (in less than 20 years) we will see another ten fold increase and less credit. So the writing is on the wall. The wages will not rise to keep up with this sort of inflation.

Page 18, 19 and 20 make an interesting read – Derivates and index (SP500/FTSE) 2020 put contracts (sold by Berkshire in 2004/2005 thus taking a long position on the index over 15 to 20 years). Some of these contracts (8) have been unwound in 2010 at the instigation of the counter parties requiring payment by Berkshire, but still resulting in a gain since the premiums paid were more than the unwinding cost (plus free use of the float of’course).

The reason for appreciation in Japanese Yen could be due to hedges against a depreciation in the US dollar. If one needed to place a vast hedge for USD in a investment that is safe, liquid, available in unlimited quantity and not cause the underlying asset to move a lot then Japanese Yen is the best bet.

It seems to me that the vast majority of the Japanese (mostly savers in Postal Savings) should benefit (finally!) due to buy and hold strategy (of Japanese Yen) over the course of next few years as the USD (world’s reserve currency) depreciates.

The corollary to that is that the US equities will appreciate (especially those that have most of the receivables in other currencies and most of the payables in USD) and other equities would depreciate (more so if the local economies’ growth was due to exports to the US).

Most of the emerging market equities markets will collapase due to collapse of exports to US. US corporations and consumers will look for cheaper sources of goods internally as the US dollar depreciates over the course of the next decade (managed USD depreciation since this is the only way to fix the trade imbalance and create jobs for the long haul – a structural shift).

This will continue the momentum in the US equity market which started in March 2009 after the massive monetary injection by the Fed (see link below for details).

(http://process-improvement-solutions.com/blog/2009/03/19/the-fed-goes-all-insort-of/).