DebtCrisisCD Workbook7

HS Dent Publishing
Audio CD Workbook
The Debt Crisis of

2011-2012: How You Can
Prepare and Prosper
Harry S. Dent, Jr.

Author of:
The Great Depression Ahead
The Next Great Bubble Boom
The Roaring 2000s
The Great Boom Ahead
CD 1: Why a Deeper
1-1
Crisis Is Unavoidable: The
Truth About Our DEBT
CD 2: Why the Boom

Turns to Bust: How
2-1
DEMOGRAPHICS Drive Our

Economy
Harry S. Dent, Jr. is recognized as one of the most reliable economic and
business trend forecasters of our time. He has been profiled and quoted
in Fortune, Business Week, The Wall Street Journal, Investors Business
Daily, and Entrepreneur, and regularly appears on CNN, Fox and CNBC.
He is a Fortune 100 consultant, small business manager, new venture
investor and noted speaker as well as having a Harvard MBA. Mr. Dent
stood virtually alone in forecasting the unanticipated boom of the 1990s
in his book, The Great Boom Ahead written in 1992. Mr. Dent also
explained in his book his prediction for a downturn in the US that would
start around 2008. In 1989, when Japan looked invincible, he forecast
that the Land of the Rising Sun was on the verge of a 12 - 14-year
downturn, which followed in short order. He offers a refreshingly
understandable view of how the economy works, and suggests practical
applications at all levels, and uniquely uses the science of demographics
to identify changing trends and opportunities ahead. Dent has proven
that by using his approach to understanding the economy you can see the
key economic trends that will impact your life, your business and your
investments over the rest of your lifetime and years before they occur!
Now Mr. Dent has put together this CD Set, The Debt Crisis of 20112012: How You Can Prepare and Prosper
You will learn how massive debt levels, slowing demographic trends in
spending, and deflation in prices (not inflation) will create a crisis much
like the early 1930s. Dent calls these the three D's: DEBT,
Slowing and DEFLATION
DEMOGRAPHICS and DEFLATION. To survive and prosper in these
Ahead
increasingly volatile times you must understand how the three D's will
impact you, your family and your business. The massive stimulus
CD 4: How to Prepare
program of the U.S. government and worldwide will fail and create a
4-1 banking crisis greater than the one we saw in late 2008. Individuals and
and Prosper: Short and
businesses that can see this coming can prepare and prosper as we will
Long Term Predictions
see the greatest sale on financial assets since the early 1930s. This crisis
which will create unprecedented opportunities "out of the ashes" will
paradoxically be very good for our economic health and will reduce our
debt levels and cost of living. This will generate another mass prosperity
boom like the one following the Great Depression from the 1940s through
the 1960s. Harry Dent gives you short and long term strategies for preparing and prospering in the crisis just
ahead and for the longer winter season lasting into 2020 to 2023. Cash, cash flow and credit will be king for
investors, as well as betting against stocks and real estate. Many businesses will evaporate and fail. Those that
cost cut and focus on their strongest products and services will survive and become dominant in their market for
decades to come.
CD 3: The Four Seasons

of Our Economy: Winter,
3-1
This CD set includes:

CD 1: Why a Deeper Crisis Is Unavoidable: The Truth About Our DEBT
CD 2: Why the Boom Turns to Bust: How DEMOGRAPHICS Drive Our Economy
CD 3: The Four Seasons of Our Economy: Winter, Slowing and DEFLATION Ahead
CD 4: How to Prepare and Prosper: Short and Long Term Predictions
And a bonus CDROM which includes a downloadable workbook with charts so you can follow along with the first
4 discs.
Begin Learning How You Can Prepare and Prosper, NOW!
Copyright 2010, HS Dent Publishing
1-1
The Debt Crisis of 2011-2012: How You Can Prepare and Prosper
CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

Note Your Insights & Actions Here :
U.S. Debt Since 1929
as a percentage of GDP by category
Chart 1.1
Source: SG Global Strategy, Bloomberg, US Federal Reserve
l Debt as a % of GDP was approaching 200% of GDP in

1929 prior to the Great Depression
l In 2008 such debt was approaching 400%
l We have just seen the greatest credit bubble in
modern history
Total U.S. Debt, 2008

60,000,000,000,000
50,000,000,000,000
40,000,000,000,000
30,000,000,000,000
Federal Govt Trust Funds

Federal Govt
State and Local Govt
Financial Sector
Foreign
Corporate
Household Other
Consumer Credit
Home Mortgage
20,000,000,000,000
10,000,000,000,000
0
Government
$14Trn
Financial
$17Trn
Corporate
$11Trn
Consumer
$14Trn
1977 1982 1987 1992 1997 2002 2007

Source: Federal Reserve Flow of Funds Report
Total:
$56 Trn !
Chart 1.2
l Forget the $13 trillion in Federal Debt -- total private

and government debt was $56 trillion in 2008
l $14 trillion in total government, $17 trillion in
financial institutions, $11 trillion in corporate and $14
trillion in consumer
l The financial sector and consumer sector are the
most extreme and where the crisis has concentrated
1-2

Unfunded Entitlement
Obligations In $Trillions
50
40
Includes Social Security

and Medicare
$46 trillion
30
Addition of Medicare
Part D
20
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: The White House, US Treasury
Chart 1.3
In addition, the government declares that it would

take $46 trillion today to fund the benefits it has
promised for health care and social security
l 80% of that $46 trillion in unfunded liabilities comes
from Medicare/Medicaid which increased dramatically
in 2003 with expanded drug benefits
l In 2009 we expanded health care again when we
clearly can't even afford what we already have
Total US Debt Obligations
Total US Debt
+
$56 trn
Unfunded Federal Liabilities
$46 trn
=
Total Debt Obligations
$102 trn
7 x GDP !!!
Source: HS Dent
Chart 1.4
l Our total debt when $46 trillion in unfunded liabilities

is added to $56 trillion in debt = $102 trillion!
l That is 700% of GDP as opposed to 200% in 1929
l Our debt crisis is far greater than anyone is telling
you, meaning a crisis is inevitable and the government
can't just stimulate their way out of this mess!
1-3

Financial Sector Debt Outstanding
$Millions, Seasonally Adjusted Annual Rates

18,000,000
16,000,000
14,000,000
Agency-and GSE-backed
Mortgage Pools
12,000,000
10,000,000
Asset-Backed Securities
8,000,000
6,000,000
Government Sponsored
Enterprises
4,000,000
Bank Holding Companies

Finance Companies
Funding Corporations
Commercial Banks
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2,000,000
All Other Financial Institutions
Chart 1.5
Source: Federal Reserve Flow of Funds Report
The $17 trillion in financial institution debt is

unprecedented, banks used to lend against d e p o s i t s ,
now they sell their loans to investors through debt
securities
l $8 trillion in debt was raised by government sponsored
agencies like Fannie Mae to buy loans from banks and
allow them to lend more
l $4 trillion was borrowed by Wall Street through "toxic"
mortgage securities
Weekly Leading Index

May 10
30
20
Dec 07
10
Jan 09
0
-10
The WLI forecasts economic

growth approximately 7 months into
the future.
-20
Sep 09
Nov 08
-30
5/1/2010
1/1/2010
9/1/2009
5/1/2009
9/1/2008
5/1/2008
1/1/2008
9/1/2007
5/1/2007
1/1/2007
9/1/2006
5/1/2006
1/1/2006
Source: ECRI
1/1/2009
Jul 09
-40
Chart 1.6
We said from the beginning that the government

stimulus plan would fail
l The best economic leading indicator is pointing
towards recession again by January of 2011 if not sooner
l The stock crash we have been forecasting for the
summer of 2010 will cause this indicator to turn down
much steeper ahead
1-4

Daily Growth Index
Chart 1.7
Source: Consumerindexes.com
Innovative new real-time measures of consumer

spending are forecasting a consumer slowdown even
earlier
l 2nd quarter GDP will be very disappointing when
released on 7/30/2010 and 3rd quarter could be
negative
l An accelerating stock crash from July onward will
cause consumer confidence and spending to plunge
further
Mortgage Delinquencies
Total Delinquency % (excluding Foreclosures) All Product Types
11
10
Source: LPS Applied Analytics
Feb-10
Oct-09
Jun-09
Feb-09
Oct-08
Jun-08
Feb-08
Oct-07
Jun-07
Feb-07
Oct-06
Jun-06
Feb-06
Oct-05
5
4
3
Jun-05
9
8
7
6
Chart 1.8
Mortgage delinquencies continue to rise sharply

despite the economic recovery
l Foreclosures follow on a 1 - 1.5-year lag and that
depresses home prices further
l As the economic recovery fails further delinquencies
will only rise faster in late 2010 and 2011
1-5

The Ticking Time Bomb
Negative Equity by Mortgage Sector

Q1 2009
Q1 2011
Projected
Total mortgage market
26%
48%
Option ARM
77%
89%
Subprime
50%
69%
Alt-A
49%
66%
Prime jumbo
29%
46%
Conforming
16%
41%
Chart 1.9
Source: Deutsche Bank August 5, 2009 Report
The real "ticking time bomb" is rising homes

"underwater," meaning the home is worth less than the
mortgage
l Even in a good economy 48% of mortgages are
estimated to have negative equity by early 2011 with
60% of those severely negative
l The worst loans are option-ARMs with no principle
and no interest for the first 5 years and they will be 89%
underwater
Mortgage Resets
Trigger for the Next Financial Meltdown
We are
here
Source: Loan Performance, Amherst Securities
Chart 1.10
l The "trigger" for the ticking time bomb is predictable
rises in mortgage resets to higher, longer term rates

l The next surge occurs into October of 2010 and then
higher into September of 2011
l Subprime mortgages dominated the surges into 2008,
this time it will be option-ARM loans - and they are the
most likely to default
1-6

Long Term House Prices vs. Inflation
250
Home Prices
Adjusted
for
Home
Prices
Inflation
200
150
100
50
0
1880
1900
1920
1940
1960
1980
Source: Robert J. Shiller, Irrational Exuberance, 2nd Edition, Princeton

University Press, 2005.
2000
2020
Chart 1.11
Housing prices do not go up with the economy as

stocks do
l They correlate with inflation when adjusted for size
and quality of features
l An unprecedented housing bubble occurred from
2000 - 2005 with prices more than doubling - that was
simply not sustainable
Japan Residential Land Price National Index

250
200
Prices rose 2.6 times in 5 years

150
100
50
0
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Japan Statistics Bureau
Chart 1.12
l A similar housing bubble occurred in Japan from 1986
- 1991 with a 2.6 times increase

l Bubbles always go back to at least where they started
as occurred in Japan with a 63% decline back to a bit
lower than 1986 levels
l Japanese prices have not risen substantially even 18
years after their peak in 1991 due to a much smaller
generation to follow as buyers
1-7

Borrowing Power of a Typical Home Purchaser
Pre-Tax Income
Borrowing Power
2.8 times
Chart 1.13
Source: Amherst Securities
The unprecedented housing bubble was fueled by

extremely easy credit and low interest rates
l In 2000 the average household could borrow 3.3 times
their income
l By 2006 that expanded to 9.2 times, or nearly triple
- that is nuts!
Average US Home Prices

1994-2010
250
200
150
-34%
100
-55%
-65%
50
0
1994 1996 1998 2000 2002 2004 2006 2008
Source: Case-Shiller US 10-City Index
Chart 1.14
l The U.S. housing bubble is likely to go back to where
it started or a bit lower

l The bubble started in 2000 and that would imply at
least a 55% decline vs. the 34% thus far
l Look at your real estate and ask: what was it worth
between 1996 and 2000? That is where it is likely to fall
1-8

Estimated Debt Write-Offs in the Private Sector
$8 Trn FMae/FMac Bonds
$3.0 - $4.0 Trn
$4 Trn Wall Street Toxic Securities
$2.5 - $3.0 Trn
$14 Trn Consumer Mortgages/Credit
$6.0 - $7.0 Trn
$5 Trn Other Financial Sector
$2.0 - $2.5 Trn
$11 Trn Corporate and Comm. RE
$5.0 - $6.5 Trn
State and Local Govt. Bonds
$0.5 - $1.0 Trn
TOTAL WRITE OFFS

Source: HS Dent
$19.0 24.0 TRN

Chart 1.15
The great benefit to this debt crisis will be the

elimination of $ trillions in private debt
l We estimate that such write-offs could end up being
near $20 trillion!
l The ultimate "stimulus program" would be for the
government to support the banks in writing down debt
which saves massive costs for households and
businesses
2-1
CD 2: Why the Boom Turns to Bust How DEMOGRAPHICS Drive Our Economy
Average Annual Family Spending
by Age (5-year age groups)
46-50
$40,000
$35,000
$30,000
Spending
$25,000
$20,000
$15,000
$10,000
$5,000
$0
20
30
40
50
60
70
80
Age
Chart 2.1
Source: HS Dent
The key driver of our economy is the predictable

family spending cycle with age
l Spending rises into a peak at age 46, plateaus into age
50 and then declines
l Spending typically peaks as the kids graduate and
leave the nest
Immigration Adjusted Birth Index

5,500,000
Immigration-Adjusted Births
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009
Source: HS Dent
Chart 2.2
l We do predictable things from cradle to grave which

makes many things predictable about our economy
l Hence, the birth index adjusted for immigration is the
key leading indicator
l We can predict inflation, spending, borrowing, home
buying and savings decades in advance
2-2
The Spending Wave
Births Lagged for Peak in Family Spending

17,000
5,200,000
15,000
4,700,000
13,000
11,000
4,200,000
Dow Adjusted
for Inflation
9,000
3,700,000
7,000
Immigrationadjusted Births
Lagged for Peak
Spending
3,200,000
5,000
2,700,000
3,000
1,000
2,200,000
1956
1966
1976
1986
1996
2006
2016
2026
2036
2046
2056
Chart 2.3
Source: HS Dent
l Most important, we can predict the broader economy
on a 46-year lag to the birth index

l Stocks follow the economy and correlate well long
term when adjusted for inflation
l You can see the booms and busts in our economy 46
years in advance and we warned of a downturn around
2008 twenty years ago!
Japanese Stocks vs.

Consumer Spending 1987 2007
4.00%
3.00%
45,000
40,000
Nikkei Average
35,000
2.00%
30,000
1.00%
25,000
0.00%
20,000
15,000
-1.00%
10,000
-2.00%
Change in Consumer
Spending
5,000
-3.00%
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Source: Japanese Family Income and Expenditure Survey
Chart 2.4
l We predicted a 12 - 14-year downturn in Japan back in

1988 - 1989
l Consumer spending followed a predictable demographic
decline and stocks followed downward in line with that
l Japanese stocks declined 80% and are still down 75%
in the summer of 2010, 20 years later
2-3
Potato Chip Purchases by Age
70
42
60
$ Per Year
50
40
30
20
10
0
10
20
30
40
50
60
70
80
Age of Head of Household
Chart 2.5
Source: HS Dent
l Demographic trends are pervasive - down to the most

micro levels
l Potato chips peak at age 42 as calorie intake peaks at
14 and the average kid is born at 28 to the parent
l Such product trends can be predicted into local areas
with different age distributions
Motorcycle Sales by Age

50
45-49
$ Per Year
40
30
20
10
0
20
25
30
35
40
45
50
55
60
65
70

Source: HS Dent
Chart 2.6
l You wouldn't have to be a psychologist to know when
the average male has a mid-life crisis

l Motorcycles spending peaks between age 45 and 49
which means a bust ahead
l It is aging professionals that dominate motorcycle
spending, not younger people
2-4
Spending on Prescription Drugs by Age
180
81
160
140
$ Per Year
120
100
80
60
40
20
0
20
25
30
35
40
45
50
55
60
65
70
75
80

Chart 2.7
Source: HS Dent
l Most areas of spending peak between age 42 and 54 -
from housing to furnishings to cars to travel

l The one large area that will continue to grow with
Baby Boomers will be health care
l For example, prescription drugs grow until the
average woman dies at age 81
Real Estate Spending Cycle
Spending
Vacation Homes
46-50
Resorts
Trade-Up Homes
54
37- 42
Vacation /
Retirement
Homes
29-33
26
63-65
Starter Homes
18 21
Apartments / Shopping Centers

Offices
Colleges
20
24
28
32
36
40
44
48
52
56
60
64
68
Age
Source: HS Dent
Chart 2.8
Real estate is not one industry, but a series of

lifestyle purchases as we age
l Apartments peak at 26 as we get married, then starter
homes at age 29-33 and trade-up homes at age 37 - 42
l There are two surges of second homes, the first into
age 46 - 50, and the second into 63 - 65
2-5
Europe Spending Wave vs. Workforce Growth
550000
37500
35500
500000
33500
31500
450000
29500
27500
400000
25500
23500
350000
21500
Spending Wave
19500
Workforce
2080
2085
2090
2095
2075
2065
2070
2050
2055
2060
2045
2025
2030
2035
2040
2000
2005
2010
2015
2020
1980
1985
1990
1995
1975
1960
1965
1970
300000
1950
1955
17500
Chart 2.9
Source: United Nations
l We can use demographic trends to predict globally as
well
l Developed countries generally follow the same
Spending Wave as in the U.S.
l Europe's Spending Wave points down from 2010 for
decades to follow, as does Russia and East Europe
Brazil
GDP Per Capita vs. Urbanization

9000
8000
7000
$5,800
GDP Per Capita
6000
5000
4000
3000
2000
1000
0
30
40
50
60
70
80
90
% Urban
Source: United Nations, Maddison, Agnus
Chart 2.10
In emerging countries, urbanization is the most

critical trend for raising incomes and productivity
l Brazil and Latin America are already 80% urbanized
with slower potential ahead
l Brazil only has $5,800 GDP per capita in 2000
compared to near $30,000 in the U.S. at similar
urbanization rates - they will not become as rich
2-6
Brazil
Spending Wave vs. Workforce Growth

160000
18750
16750
140000
14750
120000
12750
100000
10750
8750
80000
6750
60000
4750
Spending Wave
Workforce
40000
2750
20000
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
2075
2080
2085
2090
2095
750
Chart 2.11
Workforce growth is the better measure of

demographic growth as emerging countries don't have
the highly leveraged Spending Wave into age 46
l Brazil will continue to grow from workforce trends
into around 2030
l Most of Latin America will see workforce growth more
into around 2040
China

140000
1170000
1070000
120000
970000
100000
870000
770000
80000
670000
60000
570000
470000
Spending Wave
40000
Workforce
370000
2080
2085
2090
2095
2050
2055
2060
2065
2070
2075
2020
2025
2030
2035
2040
2045
1990
1995
2000
2005
2010
2015
1960
1965
1970
1975
1980
1985
270000
1950
1955
20000
Chart 2.12
China will be the surprise of this century as its

demographic growth plateaus from 2015 to 2025 and
then declines more strongly from 2035 forward
l This results from the "one-child policy" back to the
early 1970s
l China will see continued growth from urbanization
ahead, but at much slower rates due to demographics
2-7
India

120000
1200000
100000
1000000
80000
800000
60000
600000
40000
400000
Spending
Workforce
20000
200000
2095
2090
2080
2085
2075
2070
2060
2065
2055
2045
2050
2040
2030
2035
2025
2020
2010
2015
2005
1995
2000
1990
1980
1985
1975
1970
1960
1965
1955
1950
Chart 2.13
India will be the large country that has both high

demographic and urbanization potential
l India's workforce growth points up sharply until at
least 2055 and likely longer
l Southeast Asia grows into around 2040 and Pakistan
into the Middle East into 2065 or later
Inflation Indicator
4.00%
16.00%
INFLATION
(CPI)
INFLATION
(CPI)
14.00%
3.50%
LABOR FORCE
LABOR FORCE
GROWTH
2.5-YR
GROWTH
LAG
3.00%
12.00%
10.00%
2.5-YR LAG
2.50%
8.00%
2.00%
6.00%
1.50%
4.00%
2.00%
0.50%
0.00%
0.00%
-2.00%
Apr-53
Apr-55
Apr-57
Apr-59
Apr-61
Apr-63
Apr-65
Apr-67
Apr-69
Apr-71
Apr-73
Apr-75
Apr-77
Apr-79
Apr-81
Apr-83
Apr-85
Apr-87
Apr-89
Apr-91
Apr-93
Apr-95
Apr-97
Apr-99
Apr-01
Apr-03
Apr-05
Apr-07
Apr-09
1.00%
Source: BEA and Bureau Labor Statistics
Chart 2.14
Demographics also drive inflation rates as young

people are expensive and unproductive
l Workforce growth on a 2.5-year lag correlates closely
with short term inflation rates
l This shorter term Inflation Indicator points towards
deflation by early 2011
2-8
Inflation Forecast
3,000,000
Inflation
16
2,500,000
Minus 63 Year-Olds
2,000,000
20 Year-Olds
on a 3-Year Lag
Minus 63 Year-Olds
14
12
10
8
6
4
2
1,500,000
0
-2
1,000,000
-4
-6
Annual Inflation (%)
Annual Labor Force Growth
18
20 Year-Olds
on a 3-Year Lag
Inflation
-8
500,000
-10
-12
Source: U.S. Census Bureau and U.S. Bureau of Labor and Statistics
2030
2025
2020
2015
2010
2005
2000
1995
1990
1980
1985
1975
1965
1970
1960
1955
-14
1950
Chart 2.15
l We can extend inflation forecasts out two decades by
projecting when 20-year-olds will enter on average and

when 63-year olds will retire
l This longer term Inflation Forecast projects deflation
in prices into around 2023, not inflation
l Everything points towards deflation, including
massive debt deleveraging and falling Baby Boom
spending
3-1
CD 3: The Four Seasons of Our Economy Winter, Slowing and DEFLATION Ahead
Simple Four Season Economic Cycle
Eighty Years in Modern Times
Consumer Prices/ Inflation
Generation
Spending Boom
Stocks/
Economy
Summer
Spring
1940
1950
1960
1970
1980
Fall
1990
2000
Winter
2010
2020
2030
Chart 3.1
Source: HS Dent
l Our most important cycle is an approximate 80-year
Four Season Cycle

l Two generation boom and bust cycles creates four
seasons: spring, summer, fall and winter
l But technology innovation creates price cycles like
temperatures with high inflation in summer, deflation
in winter ahead and more balanced prices in spring and
fall
Change in US Debt
40
Private
Government
30
Percent of GDP
20
10
-10
1960
1970
1980
Source: Steve Keens Debtwatch July 2009
1990
2000
2010
Chart 3.2
Remember that private debt is $42 trillion vs.

government at $14 trillion - it is the 800-pound gorilla!
l Private debt grew faster in the boom and now is
declining faster in the bust
l Greater private deleveraging vs. government debt
increases means deflation wins, not inflation
3-2
Household Net Worth
-$18
trn
70,000,000
-$26
trn +
65,000,000
60,000,000
55,000,000
50,000,000
45,000,000
40,000,000
35,000,000
30,000,000
2002
2003
2004
2005
2006
2007
2008
2009
Chart 3.3
Source: Federal Reserve
Household net worth fell $18 trillion in the first

recession and stock crash
l We project it will end up falling at least $26 trillion in
the deeper depression ahead, and likely more
l This fall in assets greatly outweighs $ trillions in
government stimulus and private debt will ultimately
have to fall in line
The Velocity of Money
GDP to Adjusted Monetary Base

25
20
15
10
5
1960
1970
Source: St. Louis Fed, US BEA
1980
1990
2000
2010
Chart 3.4
l Many
forecasters focus on rising money supply from

the unprecedented government stimulus plan as leading
to inflation
l But they don't notice that "money velocity" is
dropping like a rock!
l If increases in the money supply are not spent or lent,
then they do not lead to inflation
3-3
Money Supply Measures - M3
Annual Money Supply Growth
16
12
8
4
0
-4
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
-8
Chart 3.5
Source: Shadow Stats, St. Louis Fed, SGS
The broadest measure of the money supply is called

M3
l M3 has been falling sharply despite the unprecedented stimulus plan and has already turned
deflationary in 2010
l The negative growth trends in M3 strongly suggest a
banking and deflationary crisis just ahead
Dow Adjusted for Inflation

1929 - 1942
400
350
300
250
200
150
100
50
1929
1931
1933
1935
Source: Yahoo Finance, Bureau of Labor Statistics
1937
1939
1941
Chart 3.6
The last winter season from 1929 - 1942 saw a

declining and very volatile stock market
l The asset allocation plans you hear about simply won't
work when everything is falling - stocks, real estate and
commodities -- international and domestic
l Long term bonds do best in the winter season, but you
have to wait until they first spike in yields for
repayment or default risks
3-4
Dow Adjusted for Inflation
1968 - 1982
3,000
2,500
2,000
1,500
1,000
500
1968
1970
1972
1974
1976
1978
1980
Source: Yahoo Finance, Bureau of Labor Statistics
1982
Chart 3.7
l The last time demographic trends declined was 1969
- 1982 in the summer season

l Stocks were trending down and were very volatile
again, but not as bad as in the winter season
l Inflation in summer favors real estate, commodities
and emerging countries, but not bonds - the winter
season will be very different
Median Asking Prices for Existing

Houses (Washington D.C.)
$8,000
$7,500
$7,000
$6,500
$6,000
$5,500
$5,000
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
$4,500
Source: Historical Statistics for the U.S. Colonial Times to1970
Chart 3.8
l Home
prices lagged stocks and bottomed in 1933 at

the worst of the Great Depression
l Home prices rebounded after the bottom and
eventually strongly - that will not be the case this time
with a smaller generation following
l Real estate needs to be bought and managed for cash
flow, not appreciation as much
3-5
Unemployment Rate
1929-1942
30%
25%
20%
15%
10%
5%
0%
1929
1931
1933
1935
1937
1939
1941
Chart 3.9
l The worst of most depressions comes in the first 3 -
5 years when the banking system is deleveraging

l Unemployment rates peaked at 25% in 1933 and then
hit 18% in the second recession in the late 1930s
l This time we are likely to see 15% plus
unemployment rates between 2011 and 2012, with
underemployment as high as 25%
Business Failures
1921-1945
35000
30000
25000
20000
15000
10000
5000
0
1921
1924
1927
1930
1933
1936
1939
1942
1945
Chart 3.10
Business failures also were much higher in the first

crash from 1930 to 1932
l A shake-out in businesses actually started back in
1920 - 1922, much like the dot-com bust 80 years later
from 2000 - 2002
l The businesses that survive the coming shake-out into
2012 will see their competitors fail and gain massive
market share
3-6
Consumer Price Index
1929 - 1942
18
17
16
15
14
13
1942
1941
1940
1939
1938
1937
1936
1935
1934
1933
1932
1931
1930
1929
12
Chart 3.11
Source: Bureau of Labor Statistics
l The Consumer Price Index also saw its worst deflation

into 1933 in the first crash
l The second stock crash and downturn only saw very
minor deflation in prices
l The next spring inflation cycle started from 1942
forward as will occur from 2020/2023 forward
Long Term Treasury Yields

1929-1942
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1929
1931
1933
1935
1937
1939
1941
Chart 3.12
Interest rates or yields on long term government

bonds fell generally from 1929 through 1941
l But there was a spike in yields in late 1931 as the
worst of the crisis started to set in
l While most investments fell, there was a great bond
bull market from late 1931 through 1941 -- and likely
from late 2010/mid-2011 into 2020-2022
4-1
CD 4: How to Prepare and Prosper Short and Long Term Predictions

Minefield of
Ticking Time Bombs
Accelerating Mortgage Defaults
China Bubble Bursts
October
September
Iran Tensions,
Terrorist Strikes,
Oil Spikes
August
July
June
May
Very Disappointing 2nd Qtr GDP
Mildly Disappointing
1st Qtr GDP
April
Further Default Threats in Europe

Austerity Programs
March
China / India Tighten
February
Greece Default Threat
January
2010
Chart 4.1
Source: HS Dent
l In March of 2010 we outlined a "minefield of ticking
time bombs" to go off over 2010

l We saw European default threats coming back in April
and May and mildly disappointing 1st quarter GDP
l From late July on we see very disappointing 2nd
quarter GDP, geopolitical crises, accelerating mortgage
defaults and China's bubble bursting
Dow Forecast Scenario 1

2010-2023
15,000
12,000
9,000
6,000
3,000
3,4003,800
3,2003,300
0
Oct-02
Source: Yahoo Finance
Oct-07
Oct-12
Oct-17
Oct-22
Chart 4.2
We outline two scenarios for stocks in the decade

ahead and the broader winter season
l The next stock crash is likely to occur steeply into late
2010 and see the Dow as low as 3,400-3,800
l After another bounce into 2011, the last wave down
should occur into mid-2012 or so with lows around
3,300
4-2

Dow Forecast Scenario 2
2010-2023
15,000
12,000
9,000
6,000
3,000
0
Oct-02
3.200 3,800
Oct-07
Oct-12
Oct-17
Oct-22
Chart 4.3
l The second scenario would see a more steady decline
into mid-2012 with a bottom likely between 3,200 and

3,800
l There would similarly be a mid-term rally mostly
between late 2014 and mid-2017 followed by a more
minor crash into 2020/2022
l In this scenario investors should wait to buy stocks
long term until around mid-2012 and mid-2022
10 Year Treasury Bond Yield

1989-2023
Chart 4.4
l 10-Year Treasury bond yields have been declining in a
channel since 1989

l We could see even lower lows in yields at more like
1.5% by early 2013 or so, after a spike to around 4.5%
first
l Bond yields should generally decline from early 2011
or so into 2020 or so creating a good environment for
owning bonds long term
4-3

Top Federal Individual Income Tax Rates
Percentage
1913 - 2008
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1913192319331943195319631973198319932003
Chart 4.5
Source: IRS
Tax rates rose in the last winter season from 25%

marginal rates to 94% in World War II
l That will happen again, likely to a somewhat lesser
degree from 2011 into 2020 or so
l Talk to your financial advisor about how to reduce
exposure to rising tax rates now before the rules change
The Apartment/Shopping Center Wave

26-Year Lag
Immigration-AdjustedBirth
5,500,000
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1959 1969 1979 1989 1999 2009 2019 2029
Source: BLS and HS Dent
Chart 4.6
Apartments are the best sector in the current

downturn although there will be losses from
depreciation of prices
l Apartments will benefit from rising rental demand
from Echo Boomers into 2017
l They will also benefit from households that can't or
won't buy a starter home in this environment
4-4

The Starter Home Wave
Births on a 31-Year Lag
Immigration-Adjusted Birth
5,500,000
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
1960 1970 1980 1990 2000 2010 2020 2030
Chart 4.7
Starter homes will see the greatest demographic

pressures once home prices likely bottom around early
2013
l Demographic trends favor starter homes into 2021
and then again from 2028 into 2038
l This is the first and best broad sector for buying from
early 2013 forward - have your kids wait to buy
The Trade Up Home Wave

Immigration-Adjusted Birth
5,500,000
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
1970 1980 1990 2000 2010 2020 2030 2040
Chart 4.8
l Trade-up
homes will fare the worst in this downturn

and for years to come
l The next rise in demand comes from 2018 into 2032
l This is the last sector to buy into unless there are
incredible bargains
4-5

The Vacation/Retirement Home Wave
5,500,000
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
1987
1997
2007
2017
2027
2037
2047
Chart 4.9
l Vacation/retirement homes and areas will likely see

the most appreciation after crashing the most from
extreme speculation
l The final demographic cycle points up from 2013 into
2024
l Early 2013 to early 2015 is likely the best period to
buy second homes again
The Commercial Real Estate Wave

Workforce Growth Projections
3,000,000
20-year olds minus
2,500,000
Annual Labor Force Growth
63-year olds
2,000,000
1,500,000
1,000,000
500,000
0
1950
1960
1970
1980
1990
2000
Source: U.S. Census Bureau and U.S. Bureau of Labor and Statistics
2010
2020
2030
Chart 4.10
l Commercial real estate peaks the latest with the broad

economy and then falls the hardest
l Demographic trends here don't really pick up until
2023
l There will be select buying opportunities from early
2013 or early 2015 for the mid-term boom into 2017
4-6

Global Spending Wave
800,000
India
Pakistan
Mid East Saudi N. Africa
Arabia
China 2
Russia 2
600,000
US 1
Europe
Mexico
SE Asia
Japan 2
S. Korea
400,000
Sub-Saharan
Africa
US 2
Indonesia
Brazil
China 1
Russia 1
200,000
Japan 1
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
2075
2080
2085
2090
2095
Chart 4.11
l Global spending in general is flat into 2023 and then

up into 2035 before flattening again
l The next concerted global boom will be shorter than
the last one from 1983 - 2007
l India should lead along with Southeast Asia and the
Middle East, with Europe lagging the most and
China/East Asia somewhat
29-30 Year Commodity Price Cycle

CRB Index (PPI before 1947) 1913-2040
2009-10
500
450
2039-40
1980
400
350
19491951
300
250
200
1920
150
100
50
Source: Bloomberg
Jan-33
Jan-23
Jan-13
Jan-03
Jan-93
Jan-83
Jan-73
Jan-63
Jan-53
Jan-43
Jan-33
Jan-23
Jan-13
Chart 4.12
Commodities boom on a different clock than

demographic cycles - every 29 - 30-years
l Commodities are important for exports to most
emerging countries
l Latin America, the Middle East and Africa will get an
extra boost out of a booming commodity cycle again
from 2023 - 2038/2039
4-7

The College Admissions Wave
Immigration-Adjusted Births Lagged 18 Years

4,900,000
4,700,000
4,500,000
4,300,000
4,100,000
3,900,000
3,700,000
1980
1990
2000
2010
Source: HS Dent
2020
Chart 4.13
You can use our cycles to plan for your kids'

education and career strategies
l The economy will be unattractive for jobs between
late 2010 and early 2013, and again from late 2017 into
2020/2023
l College enrollments will be declining demographically
between 2009 and 2015 making it easier for your kids
to get into a good college
Summary Action Points for Businesses:

Sell Your Business in Late 2010 if You Want to Retire/Exit
Cut Back Major Capital Expenditures Until Early 2013
Focus on Short Term Marketing Expenditures to Increase Sales
Cut Short-Term Costs to the Bone to Increase Cash Flow
Focus on Cutting Overheads that Don't Contribute to Cash Flow
Focus on Products/Markets You Can Dominate and Survive In
Look to Where Demographic Trends will Favor Your Business
Look for New Opportunities from Larger Businesses Refocusing
Look to Buy Assets on Sale in Bankruptcy from 2012 Forward
Survive and Watch Your Competitors Fall = Greater Market Share
Source: HS Dent
Chart 4.14
Summary
Thank you for listening to The Debt Crisis of 2011-2012: How You Can
Prepare and Prosper.
You have just heard one of the most influential forecasters of our time explain not only how
our economy works, but also how to prosper and thrive in the volatile times that lie ahead!
You may have already seen some of this volatility by the time you listen to this CD series.
This is only the beginning. Now you must map out your own strategy for protecting your
business, your investments, and your family and position yourself to prosper from the
unprecedented opportunities that will come from the predictable trends in debt,
demographics, and deflation. This will require you to not only consider your position in the
current economic environment, but also to stay informed as the economic landscape is
always changing.
Because you have used this audio CD set to learn more about Harry Dent's research and
how it can help prepare you for the times to come, Mr. Dent would like to offer you:
l a FREE copy of a recent edition of his newsletter, the HS Dent Forecast
l and a FREE copy of his timely special report, the "Debt Crisis of Late 2010 - Late 2012"
You also have Mr. Dent's permission to share this report with your friends and relatives to
warn them about what is to come. This offer is only good for a limited time, so please visit
the website that we have set up for you at http://www.hsdent.com/debtcrisis-lp. You
can also call us toll free at 888-307-3368. Thanks for listening!
HS Dent Publishing, LLC

15310 Amberly Drive, Suite 390, Tampa, FL 33647
888-307-3368
www.hsdent.com

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HS Dent Publishing

The Debt Crisis of

Harry S. Dent, Jr.

CD 2: Why the Boom

DEMOGRAPHICS Drive Our

CD 3: The Four Seasons

This CD set includes:

CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

as a percentage of GDP by category

Source: SG Global Strategy, Bloomberg, US Federal Reserve

l Debt as a % of GDP was approaching 200% of GDP in

Total U.S. Debt, 2008

Federal Govt Trust Funds

1977 1982 1987 1992 1997 2002 2007

l Forget the $13 trillion in Federal Debt -- total private

Copyright 2010, HS Dent Publishing

CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

Includes Social Security

In addition, the government declares that it would

Total US Debt Obligations

Unfunded Federal Liabilities

l Our total debt when $46 trillion in unfunded liabilities

Copyright 2010, HS Dent Publishing

CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

$Millions, Seasonally Adjusted Annual Rates

Bank Holding Companies

All Other Financial Institutions

Source: Federal Reserve Flow of Funds Report

The $17 trillion in financial institution debt is

Weekly Leading Index

The WLI forecasts economic

We said from the beginning that the government

CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

Innovative new real-time measures of consumer

Source: LPS Applied Analytics

Mortgage delinquencies continue to rise sharply

CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

Negative Equity by Mortgage Sector

Total mortgage market

Source: Deutsche Bank August 5, 2009 Report

The real "ticking time bomb" is rising homes

Trigger for the Next Financial Meltdown

Source: Loan Performance, Amherst Securities

l The "trigger" for the ticking time bomb is predictable

rises in mortgage resets to higher, longer term rates

CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

Source: Robert J. Shiller, Irrational Exuberance, 2nd Edition, Princeton

Housing prices do not go up with the economy as

Japan Residential Land Price National Index

Prices rose 2.6 times in 5 years

Source: Japan Statistics Bureau

l A similar housing bubble occurred in Japan from 1986

- 1991 with a 2.6 times increase

CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

Source: Amherst Securities

The unprecedented housing bubble was fueled by

Average US Home Prices

l The U.S. housing bubble is likely to go back to where

it started or a bit lower

Copyright 2010, HS Dent Publishing

CD 1: Why a Deeper Crisis Is Unavoidable The Truth About Our DEBT

$3.0 - $4.0 Trn

$4 Trn Wall Street Toxic Securities