Hello from Japan. Minyans know that I moved here a few years ago, as I normally do when I anticipate a major movement in currency. Why? I take very seriously the notion of wealth, and I aim to protect it; the best way to do that is by denominating my assets in the strongest currency in the world and sitting with it.

Since August, the dollar has rallied against most major currencies, and has appreciated about 17% against the euro. This isn't for good reasons, as I have explained: Deflation, or the destruction of debt, destroys dollars, and as you destroy the supply of dollars, the value goes up. A strong currency is the hallmark of deflation; a weak one is due to inflation (all other things being equal).

Deflation can actually be viewed as relatively good for savers, and Japan has one of the highest savings rates in the world. It wasn't hard to figure this one out. During the same period, the yen has appreciated versus the dollar by 13%.

Nor was it difficult to figure out the impending nature of the "financial crisis," as it's been labeled by the government and the media. In Hank Paulson's op-ed this morning in the New York Times, he shamelessly uses the word "unpredicitable" several times to describe the "crisis". Even the word "crisis" connotes suddenness and unpredictability.

The current deflation was very predictable, and it wasn't sudden: It is the culmination of a long process in which the Federal Reserve allowed the US financial system (and other central banks allowed those of other countries) to become extremely super-levered. That's inflation. The system become so levered it couldn't take any more. There wasn't enough (and there isn't enough) income generation to support this level of debt.

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