Ten months ago, Arnott wrote:

"The lion's share of the debt reduction may well be accomplished through reflation. We can eliminate half of our debt in 15 years if our inflation runs 5% higher than our trading partners, and if our real GDP growth keeps pace despite the inflation. Thus, if our partners are running at 3%, then an 8% annual inflation rate would do the trick. To keep debt service costs, we need to persuade our creditors that we're serious about a strong dollar, even as we work to weaken the dollar. For those of us who were unlucky enough to begin our careers in the 1960s and 1970s, we know this kind of inflation is not the foundation for solid real returns. This is not a smooth and comfortable road, but it is the only politically expedient path."

Surprisingly, Arnott thinks gold could disappoint those who fear inflation, since the price of gold measured against oil has more than doubled in the last two years. He prefers energy and agricultural commodities, along with emerging market bonds. Not a single nation among the 43 countries classified as emerging markets has a debt-to-GDP ratio larger than the five biggest developed economies in the world.

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