Thoughts from the Frontline

Calling an Economic Audible

September 11, 2016

Dear Friends,

Now is the time I would normally be sending you Thoughts from the Frontline, but this week I’m calling an audible. Rather than leave you wondering, I’m sending this short note to explain the new game plan.

I’ve spent the last few days working on what I think will be one of my most important newsletters ever. The more I researched and wrote, the more concerned I got at the direction our monetary and political authorities want to take us. The words I wrote led me to conclusions I could not believe.

Trying to prove myself wrong, I’ve spent hours on the phone and in person with some of my best sources. They think I’m right – which doesn’t make me feel any better.

The long and short of it is, our central bankers have set themselves up as the high priests of an economic religion. They hold certain doctrines on faith, and nothing will shake that faith. That’s the same impulse that drove ancient religious leaders to “policy decisions” like human sacrifice. The gods demand it, so it must be done. Too bad for all the victims.

The high priests of the global economy are so confident in their anachronistic dogma that they seem intent on sacrificing all of us, or at least those of us who depend on our savings and investments.

Time will prove the wizards of central banking wrong, but by then a lot of people will have been hurt.

Trying to explain all this, and thinking about how we might counter it, I have written what may be my longest-ever edition of Thoughts from the Frontline. I feel it’s very important that we get this right. I also want to respect your time and deliver this complex story to you in a readable, interesting way.

My editorial team is working diligently to prepare this Special Extended Edition of Thoughts from the Frontline for you. We will publish it Wednesday afternoon, at the time you would normally get Outside the Box. We’ll skip Outside the Box so you aren’t too overwhelmed, and let this one count as next weekend’s newsletter, too. You’ll get the equivalent of two letters from me, but all at once.

I appreciate your understanding and look forward to your feedback on this very important letter.

Your hoping we can do an end run around the high priests analyst,

John Mauldin


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Craig Mackechnie

Sep. 12, 2016, 8:53 p.m.

I doubt whether you need any more reason to find the actions of the worlds central bankers deplorable, but just in case you do, I would direct you to this:

Craig Mackechnie

Sep. 12, 2016, 8:50 p.m.


You have been talking about how the more you look into the actions of the world central bankers the more you have become worried about our future.

I doubt whether you need any more reason to find their actions deplorable, but just in case you do, try this one on for size:

Sep. 12, 2016, 12:54 p.m.

Mr. Mauldin, I’m afraid that the only end-run we’ll witness is the one where the average man picks up his pitch fork and marches on the Eccles building…

win burke

Sep. 12, 2016, 6:53 a.m.

Couldn’t agree more, John.

El-Erian believes that the the consequences of a continuation of bad decisions as we move along the “T-Junction” include the possibility of a “French Revolution.” He doesn’t believe enough elites understand what is at stake.

I come at it from a different direction - complexity theory. I think it is absolutely clear that emergent properties have self-assembled in highly unstable form, with feedback loops highly distorted and the Butterfly Effect increasingly vibrant. Every ten years the elites are close to crashing the entire system and the system is more highly leveraged than before, the feedback loops are totally distorted and management (we know politicians are pathetic) thinks long term growth is accomplished by a phone call to the Treasurer to buyback stock (or, as Clayton Christensen has said, short-term IRR Capex that pads bonuses but create no jobs).

In a world of increasing disorder, it is time to stop the food fight. Many think Tech will save us. Despite many great advances particularly at the nano level, what the optimists, the deniers, the predators and the epidemic of normalcy bias fail to understand is that the Bad is moving towards us at a faster rate than the Good. We are not only not in any condition to combat the next financial crisis (next 1-4 years), we are in Darwinian terms highly maladaptive. Neither resilient nor anti-fragile and not moving towards either state.

We are in big trouble. The downside in an increasingly interconnected world of increasing disorder is the Dark Ages. Cyberwarfare aside, we have had plenty of warnings. The maladaptive response to events like the AK-47 attack on PG&E’s Metcalfe facility treat existential possibilities as just another item on some to-do list (the feds didn’t even know about the risk and the utilities 3 years later are still dithering, not wanting to spend the money on the required substantial transformer inventory.

The elites only response is two trot out the SDR as if this is just another Bretton Woods moment that can be managed through with no change at the top and no concern for those underneath.

Hans Solo in Star Wars “We’re Fine, Fine. Everything Is Fine.”

James Tazewell

Sep. 12, 2016, 4:40 a.m.

If only one had time, and space…there are so many questions:-
e.g.  What is the extent of the DEFLATIONARY effects of QE/ZIRP/NIRP?  The chain of causation must be obvious, free money leads to excessive investment, then to fiercer competition, which drives down prices, and profits.  It also contributes to the failure of businesses.  What happens to the assets of failed businesses? They are sold at a discount thus adding to downward pressure on prices.
OK, it happens, but how strong is the effect?  Where is the point at which the deflationary effects exceed the intended inflationary effects?