While we are confident in our ability to understand the deleterious effects that the current set of suboptimal policies are likely to have on the global economy over time, we nevertheless don’t purport to know exactly how these policies might change from here or what impact or on what time horizon financial markets will adjust accordingly. There are too many unknowns, too much pure uncertainty. As such, when seeking to protect and preserve wealth, we need to rely primarily on the most fundamental form of insurance available to investors: Diversification.

Notwithstanding our critical view of Japanese economic policy described in part one, clearly they did not bring the recent earthquake and tsunami upon themselves. The same cannot be true of western governments and central banks, which bear full responsibility for the credit crisis of 2008-09 and the counterproductive policy responses implemented in its aftermath. Having sowed the monetary wind with a massive expansion of the money supply in 2008 and early 2009, they are now reaping the inflationary whirlwind, as recent commodity, producer and consumer price data make increasingly evident.