China particularly worries Ferguson because he sees the United States addicted to an economic relationship that has significantly contributed to our fiscal imbalances. And he believes a weakening dollar would only marginally correct these problems.

"Contrary to popular sentiment," he notes, "the continuing decline of the dollar will not sway China's currency policies. Its vast U.S. Treasury assets represent only about 5% of [China's] total wealth. So any loss on its dollar reserves through subsequent revaluation of its currency would be completely overshadowed by the gain in the value of China's renminbi-based assets."

The key macro problem is that China's currency peg to the dollar makes its exports the cheapest in the world, helping it to generate annualized growth of 10%. The Chinese government will continue accumulating U.S. Treasurys (which we need to sell) to sustain that peg for some time to come. "But for the rest of the world's exporters, it's a very painful state of affairs," says Ferguson, "and that's why there is a need to seriously alter the present relationship."

He also worries that if commercial real estate defaults continue to rise and prices continue to fall, a new financial crisis could ensue. A protracted slump in this market could bring down the banks that are "too small to save"-the regional players that offer credit to small companies, without which we can't expect much recovery in 2010, says Ferguson.

With a good chunk of dodgy commercial real estate debt in the U.S. due over the next six to 12 months, he thinks up to 1,000 banks could fail over the next year. And this could in turn lead to a public financial crisis, given governments' already disfigured budgets.

"Here and abroad, if governments have essentially said that we will bail out our big financial institutions, then the former will start to lose financial credibility," concludes Ferguson. "Dubai is now, Greece is next, Spain is not far behind. Iceland showed the way. People are now asking questions about the U.K. This could very well be a key part of the financial story that evolves in 2010."

But the experience of subprime may provide a spot of comfort. "The market, which had been living in Cloud Cuckoo Land about where residential real estate prices could go, will not be caught off guard with the next round of real estate defaults," says Ferguson.

Perhaps his largest worry is our galactic debt. Ferguson sees it as a financial albatross that will weigh heavily on the United States' future if it isn't dealt with immediately.

"I'm enough of a supply-sider to believe radical U.S. tax reform will encourage growth and help the government cut into the debt," says Ferguson. He believes we need a system that's more efficient, less cumbersome and less distortionary, one that shifts the burden of taxation away from income and profits and more toward consumption. He proposes a flat-rate income tax of around 25%, significantly lower corporation taxes and a value-added tax of 7.5% to 10%. "These changes can speed fiscal recovery, but I fear we are adopting precisely the wrong measures to achieve that end," he says.

Meanwhile, he thinks that unemployment figures in the U.S. and Europe are stabilizing, though he doesn't suspect they will be improving significantly anytime soon. "I don't think we'll have another panic again like we saw at the end of 2008 and the beginning of 2009, when companies were significantly laying off," he says. "I think in that sense, the worst is behind us. But if stagnation is the name of the game in 2010, then it isn't going to bring much good news on the jobs front on either side of the Atlantic."