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In the summer, with that generation entering the workforce, inflation continues to rise. We do a lot of research to demonstrate that young people are inflationary. They have more to do with inflation than any other factor, and nobody has a clue of this in economics. The last summer in the U.S. occurred when the baby boomers entered the workforce in large numbers, basically from the late 1960s through the early 1980s.

The fall boom brings bubbles and the resulting expansion of debt. Stocks, real estate and so on bubble up and when that boom ends, those bubbles burst. Winter sets in again, with restructuring and deleveraging of debt, which create deflation.

The 1970s was a difficult recession time, but it was inflationary, not deflationary, and not similar to the downturn that the Federal Reserve is trying to prevent now. The Fed is actively and constantly inflating the economy to prevent deflation to avoid a replay of the Great Depression. But it won't be able to hold it off indefinitely.

TGR: Let's talk a bit about the debt issue.

HD: In the U.S., most people focus on government debt. Under George Bush, the national debt grew from $5 trillion (T) to $10T in 2000-2008. At the same time, the banking system, financial systems and shadow banking-in the private sector-created $22T in debt. That was the greatest debt bubble in history, and it occurred in developed countries all around the world. So we have this global debt crisis and this debt has to deleverage. Everybody is in too much debt-financial institutions, consumers, businesses and governments, with central banks propping them up and bailing them out. Obviously, this can't go on forever.

If the demographics weren't working against the Fed and the other central banks, it might be different. But they're fighting a battle they can't win because the baby boomers are working against them. How do you stimulate an economy when the largest part of its workforce, the aging baby boomers, wants to save and not spend, to pay down debt?

That's the problem. The money the Fed creates gooses up the markets, but doesn't do much for the economy, and banks aren't lending. It's crystal clear in history. Every time you see a big debt bubble in a fall boom-as in the 1860s and 1870s-a depression follows. We saw this from 1873-1877 and into the early 1880s. We saw the next big bubble into the roaring 1920s, followed by the Great Depression and debt deleveraging after that. In short, debt bubbles ultimately burst and then deleverage. Deleveraging debt destroys money, so there's less money in the system and it means deflation in prices.

That's very important for investors to understand. In a deflationary crisis-whether in the 1930s or what started in 2008-everything goes down: commodities, stocks, real estate, even gold and silver in many cases. In deleveraging an asset bubble, all assets go down and there's nowhere to hide. Investors have to be in the U.S. dollar and very safe bonds and cash and wait for the crash, and then buy at the bottom. That's the trick. Cash is king-cash and cash flow.

In contrast, in an inflationary crisis such as the one we had in the 1970s, commodities, gold and silver were booming. Japan was in a positive demographic cycle. Emerging countries benefited. Real estate loves inflation. In that environment, a lot of things go up, but stocks and bonds go down. In this environment, though, there's nowhere to hide.

So people just have to get out of the way. Even with all the stimulus, the Fed has no way to restore normalcy with this debt level and this demographic downturn. The stimulus has merely created bubbles in stocks and commodities, and commodities are already going down pretty fast. We think stocks are next, so we expect another stock crash within the next few years. And the next crash will be worse than in 2008-2009 because the Fed has pumped everything up and stretched the system to the max.

This is what happens in the winter season. It's a survival-of-the-fittest struggle for businesses to see who will dominate their industries for decades to come. So it's a huge payoff for the companies that simply survive and it deleverages the whole debt and asset cycle and brings things back to affordability. So it's a difficult season, but it's necessary and actually good in the long term. Lower prices in general will increase the standard of living.

The government is trying to skip winter. It keeps heating things up, pouring the money into the economy so the banks don't deleverage debt and the banking system doesn't collapse as it did in the 1930s. The truth is, it's only keeping us in high debt and maintaining a bubble that's not sustainable. Sooner or later, this stimulus will result in a crash that takes down the economy.

The top 10% of consumers are the only ones still spending. We know from demographics that wealthier people marry and have kids a little later. Their kids go to school a little longer, so their spending peaks four to five years after the average person's. After these folks' spending peaks, which will be by the end of this year, we'll have a second demographic drag on the economy.

TGR: So we're basically just getting into this 2008-2023 winter depression. How deep will the trough go? Will it bottom at the midway point? What should consumers expect over the next 20 years?

HD: A winter season lasts from 13 to 15 years or so. The worst collapses in stock prices and real estate hit when the banking system deleverages. In the 1930s, that happened early on. In this case, the government took a lesson from the 1930s and decided to keep pouring money into the banking system to prevent its meltdown. But it can't be done. There's a limit to how much you can stimulate. It's like a drug. It takes more and more of the drug and it has less and less effect until it has almost no effect, and then the drug itself kills you.

We're seeing that in Europe already. The last round of stimulus there-Qualitative Easing (QE)-was massive and came well after QE2 in the U.S., but Europe's already back in trouble again and is having to implement all sorts of emergency procedures. There's no bailing out Spain. It has one of the biggest real estate bubbles in the world and a rapidly aging population. The Spanish people won't be buying housing for decades.

TGR: What do you see in terms of stocks?

HD: The worst is likely to hit in the next two years. It's a matter of when the stimulus stops working or when governments throw in the towel. At some point, for example, German citizens may just say they won't bail out another country. They've been doing it to protect exports and avoid defaults on all of the money they've loaned out already, but considering the demographics, it's a losing game.

We&'ve studied all of the major debt bubbles and depressions in history, and this one is different because Keynesian economics, which came out of the Great Depression, wasn't adopted as economic policy until the 1970s recessions. So now, for the first time in history, central banks around the world-the European Central Bank (ECB), the U.S. Federal Reserve, the Bank of China and the Bank of Japan-are actively fighting deflation. When banks start to deleverage or when deflation starts to step in, they just push money into the system. The question is: Do they lose control?

Japan has been through all of this before, but when it came into its crisis in the 1990s, it had budget and trade surpluses. The rest of the world was experiencing the greatest boom in history, which we'd predicted. There was mild inflationary pressure and everybody thought Japan was about to take over the world when it was about to collapse. We were among the few who predicted that ahead of time in the late 1980s.

Japan continued to push money into the system and never let private debt deleverage at all in either consumer or financial sectors. Japan is still carrying very high private debt, and its government debt has risen from 60% of gross domestic product (GDP) to 230% and still climbing. So Japan didn't really go through a depression. It was more an on-and-off mild deflationary recession because the stimulus eased the pain. But now Japan's debt is much larger than before the crisis and deleveraging still looms ahead. Japan has been a lost economy for 22 years now. Real estate is down 60% and stocks are still down nearly 80%, 22 years later.

Demographics say the Japanese economy will weaken even further after 2020. The interest on its debt will go up in a spring boom with rising inflation worldwide, and it will be bankrupt immediately because its debt is so high. It&'s only because it's borrowing at 1% or less that it can handle its deficits now. Sooner or later, this game has to end.

TGR: So Japan's QE has raised government debt to more than 200% of GDP but only managed to postpone a depression?

HD: Yes, it kicked the can a couple of decades down the road. It's like trying to resuscitate a patient with a defibrillator. You keep hitting the chest, clear, boom. At some point, the patient dies. If the bond markets allow the U.S. to keep putting in money like Japan, we'd end up with a balance sheet on the Fed at $5-6T and up with QE of $4-5T before this is over. We've only gone about $2T so far. The Fed stimulus pushes money into the banking system, but the banks don't lend it to fuel economic growth. They cover their losses and reserves, and then turn around and reinvest the rest in government bonds and stocks. They're speculating. The money ends up in the stock markets. It's like crack in the markets, and the markets just want more crack. But the markets can't continue to go up when demographic trends are pointing down.

TGR: Your earlier mention of losing control brings to mind the people of Greece out in the streets rioting because demands for further sacrifices and more fiscal austerity have become unbearable.

HD: It is true. One of our financial advisers who was there recently reported every third store is closed or boarded up. Greece is in a depression and Spain's headed there. The ECB has already pumped $270 billion into Spain and Greece just to cover its bank runs, which may happen faster than the governments can fend them off. In the U.S., the vulnerability is much more in real estate, as in Spain. We have a backlog of close to 4 million foreclosures already in the system. At some point, the banks will realize that home prices are not coming back. That they haven't come back in Japan after 21 years gives us a hint. But if the banks start dumping these millions of foreclosures that aren't on the market, it would kill the housing market and trigger a bank crisis that the Fed couldn't stop with stimulus.