Thoughts from the Frontline

Print or Perish

By John Mauldin

November 19, 2011

Choose your language

Print or Perish
Just Say “Nein”
And Then There Is France
How Will it Play Out?
Some Thoughts on the Super Committee
New York, Hong Kong, and Singapore

Europe is again at center stage. At conferences and meetings and in private conversations, it is the topic of the hour. I have thought a lot this week about Europe and its impact, so once again we delve into what is an evolving situation. This time, we look at possible impacts on the markets, as we ponder the questions, “Are we back to 2008?” and “Is there a Lehman in our future?” and I try once again to keep from making this a book-length letter. And I close with some brief thoughts I brought back from DC on the Super Committee and the deficit cuts.

But first, and quickly, I want to say that I am very pleased that Amazon has made Endgame one of their Best Books of the Year for 2011 AND their editors’ pick of “Gift Ideas for a Geeks,” although I am not sure how they define geek (I never thought of myself as smart enough to be a geek). The book has had very good sales of late, which is probably due to the fact that it is out in front explaining the crisis that is being caused by the end of the debt supercycle. Plus, good reviews and favorable mentions from congressional leaders (like Paul Ryan in the New York Times a few weeks ago) have helped.

It makes a good gift for Christmas or for clients! You can get it from Amazon at http://www.amazon.com/Endgame. Now, let’s jump right in to Europe and its own particular Endgame.

Print or Perish

Last week I attempted to give a short summary of the problems that face Europe. I called it “Where is the ECB Printing Press,” though I could have titled it “Print or Perish.” If you missed it, you can read it at http://www.johnmauldin.com/frontlinethoughts/where-is-the-ecb-printing-press. (For foreign readers, “publish or perish” is a mantra of the US university system, where if you do not publish in certain journals, you do…

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Trevor Parris

Nov. 19, 2011, 7:05 p.m.

Regardless of the ‘logic’ of saving the eurozone through a devaluation of the euro, it seems necessary to question whether the ECB’s and Bundesbank’s endorsement of printing money would ultimately be more costly to the world’s economies.  While only a small percentage of investors are currently questioning the value of fiat money, individuals’ faith in fiat money is based upon the track records of only a handful of central banks.  The financial repression being perpetrated by the United States should be considered a meaningful threat to the credibility of the Fed, and should the Bundesbank/ECB take similar action, there is a serious risk that the major currencies will be engaged in competitive devaluations and irreparably damage the reputation of fiat currencies.  Accordingly, any printing by the ECB seems more likely to only delay the endgame than be a part of a credible long-term solution to the problems in the eurozone.

Craig Cheatum

Nov. 19, 2011, 5:51 p.m.

I read an analysis today suggesting if we cut our spending 2%/year and increased our revenue by the sam number of dollars/year, we would have a balanced budget in 7 years, and an opportunity to start paying off the national debt.  I personally prefer something much more aggressive, but a gradual approach may have more political support.

Craig Cheatum
Houston, Texas

Dominic Pazzula

Nov. 19, 2011, 12:17 p.m.

John, excellent as always.  I touch on the trade issues of Germany running a surplus to the peripheral countries, but leave that out of the decision analysis.  I think it plays a huge role.  Merkel explicitly said (cannot find the link for the life of me) that a breakup of the Euro would crush German exports and so Germany must defend against that at all costs.  The only other choice, as you say, is to allow the ECB to print.  So what do the Germans fear more, inflation via the printing press, or a large recession as exports dry up?  My guess is the later.

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