Q: How high can the market go before, if I read your work correctly, America falls apart and takes everything down with it?

A: I’m not sure that the risk/reward now is particularly favorable. The inflationary school of thought says the Federal Reserve has no other option but to print money, and that will lift asset prices. The Standard & Poor’s 500 could get to 1,000 or 1,100 or depending on how much money they print, possibly even higher than that.

Q. You’ve warned that US risks Zimbabwe-style hyperinflation and then more recently said US inflation could reach 10% to 20% in five to ten years. Isn’t there a big gap between those outcomes?

A. We have the worst recession since the Second World War and actually the prices of necessities are still rising, including food and energy. So, one day within the next ten years, when the economy slowly recovers and when further dollar weakness occurs, inflationary pressures will increase. And once you have inflation increasing, it’s not easy to stop it unless you implement tight monetary conditions, which would imply very high real interest rates. And I don’t think that Mr. Bernanke or the US government have any intention whatsoever of having positive real interest rates. Combine easy monetary policies with large fiscal deficits, and the likelihood of much higher inflation is there. Once we go to 10% inflation, 20% becomes quite likely and once we go to 20%, we can easily go into hyperinflation.

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