Page 56 - COVID-19: The Great Reset

policy. [50] The probability of each individually is already low, so the
probability of the three occurring in conjunction with each other is

extremely low (but not nil). Bond investors think alike. This could
change, of course, but at the moment the low rate differential
between nominal and inflation-indexed bonds paints a picture of
ongoing very low inflation at best.

In the coming years, high-income countries may well face a

situation similar to that of Japan over the past few decades:
structurally weak demand, very low inflation and ultra-low interest
rates. The possible “Japanification” of the (rich) world is often

depicted as a hopeless combination of no growth, no inflation and
insufferable debt levels. This is misleading. When the data is
adjusted for demographics, Japan does better than most. Its GDP
per capita is high and growing and, since 2007, its real GDP per

member of the working age population has risen faster than in any
other G7 country. Naturally, there are many idiosyncratic reasons
for this (a very high level of social capital and trust, but also labour
productivity growth that surpasses the average, and a successful

absorption of elderly workers into the labour force), but it shows
that a shrinking population doesn’t have to lead to economic
oblivion. Japan’s high living standards and well-being indicators
offer a salutary lesson that there is hope in the face of economic

hardship.

1.2.3.2. The fate of the US dollar

For decades, the US has enjoyed the “exorbitant privilege” of
retaining the global currency reserve, a status that has long been

“a perk of imperial might and an economic elixir”. [51] To a
considerable extent, American power and prosperity have been
built and reinforced by the global trust in the dollar and the
willingness of customers abroad to hold it, most often in the form

of US government bonds. The fact that so many countries and
foreign institutions want to hold dollars as a store of value and as
an instrument of exchange (for trade) has anchored its status as

the global reserve currency. This has enabled the US to borrow
cheaply abroad and benefit from low interest rates at home, which
in turn has allowed Americans to consume beyond their means. It

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