PART ONE
THE END OF THE DEBT SUPERCYCLE
My view is that there is an inevitable endgame as a result of all this massive spending of taxpayer money in the West and Japan to bail out bankrupt banking systems, so in my view unfortunately endgame will be a systemic government debt crisis in the western world. It will probably happen in Europe and will climax in the US, and I am expecting on a five year view the collapse of the US Dollar paper standard.
—Chris Wood, CLSA strategist, former Economist correspondent, and expert on Japan’s “Lost Decade”
When we mention endgame, you’ll immediately want to know what is ending. What we think is ending for a significant number of countries in the “developed” world is the debt supercycle. The concept of the debt supercycle was originally developed by the Bank Credit Analyst (BCA). It was Hamilton Bolton, the BCA founder, who used the word supercycle, and he was referring generally to a lot of things, including money velocity, bank liquidity, and interest rates. Tony Boeckh changed the concept to the simpler “debt supercycle” back in the early 1970s, as he believed the problem was spiraling private-sector debt. The current editor of the BCA, Martin Barnes, has greatly expanded on the concept. (And of course, Irving Fisher talked about the long debt cycle in his famous 1933 article.)1
Essentially, the debt supercycle is the decades-long growth of debt from small and manageable levels, to a point where bond markets rebel and the debt has to be ...
