The document discusses the risks facing the Eurozone and world economy from following Japan's economic model of the past two decades. It notes that the Eurozone is particularly vulnerable due to its centralization of banks and lack of capital in the banking system. Several countries also lack the strong social cohesion and policy mechanisms that allowed Japan to maintain stability. With low growth, high debt levels, deflationary expectations and fragile banks, the global economy faces serious challenges in avoiding a prolonged period of stagnation.

1. Turning Japanese – the Eurozone & the World Peter Tasker – 16 th January 2012

2. Japan Syndrome Bubble burst - size counts De-leveraging - (Koo – “balance sheet recession”) Government MUST go into deficit Yet government bond yields fall to “absurd” level Presaging very low growth in nominal GDP Policy appears to have no traction Deteroriating credit quality / banking crisis Expectations self-reinforcing – negative bubble Everyone gets older

3. Japanese 10 year Bond Yield

4. Japan Nominal GDP

5. Similarities & differences Bubble – scale and timing, inclusiveness Precedent - learn from hanmen kyoshi Policy response – speed, efficacy, focus One country, many countries, every country Commodity prices - high or low Bank capital – sound or not Policy orientation – growth or austerity Social cohesion - immigration, blame game

6. US Bond Yield

7. Global Bond Yields

8. Risk & Uncertainty Keynes, Friedman, Austrians? Policy effectiveness – limited or not? Super-cycle – real or not? Bond yields say what? Is deflation “good”? Imbalances – international, eurozone Euro – a deliberately disastrous idea Politics – back to nationalism? Half world in double digit inflation

9. Summary Real risk of crisis of growth, jobs Eurozone most vulnerable Centrality of banks, lack of capital - Dexia Expectations, policy settings Many countries far less social capital than Japan Checklist – bond yields, stock markets