This week we take a brief pause in our series on the choices facing the developed world to look at some items that are catching my attention. We will get back to the US next week, as somehow I think we will not solve our problems between now and next Friday, and there will be plenty left for us to talk about. So today we look at the "shift" in Fed policy, and at the balance sheets of central banks, US GDP, Portugal and the ECB, the LTRO policy, and yes, there's even a tidbit on Greece. Plenty of ground to cover, so with no "but first," let's get started.

Fine, then. Uh oh, overflow, population, common food, but it'll do to

Save yourself, serve yourself. World serves its own needs,
listen to your heart bleed – dummy with the rapture and
the revered and the right, right. You vitriolic, patriotic, slam,

fight, bright light, feeling pretty psyched.

It's the end of the world as we know it.
It's the end of the world as we know it.
It's the end of the world as we know it and I feel fine.

R.E.M. song from 1987

It’s not really the end of the world, but to read some of the analysis and data over the past week, it’s hard not to wonder if it’s not the beginning of the Endgame at the very least. There is more to cover than I can really do justice to, but we will just start. We HAVE to look at the US data first (briefly) and then on to Europe, where it will may be the end of the euro experiment, depending on two voting populations. Can you spell “Banking Crisis,” gentle reader? A nod to Bernanke’s finger-pointing speech, some links on the scourge of high-frequency trading, and we end on a positive note about the Boomer generation growing older. And, I answer the question that is burning in your brain: “How many years of US corn production will China’s dollar reserves buy?” Write your answer down now. This letter may print out longer than usual, as there are plenty of charts. Let’s skip the “but firsts” and jump right in.

The GDP numbers for the second quarter came in, and there is no way to spin them as anything but ugly. And the revisions were worse. We simply have to take a few pages to look at them. And, as I noted last Monday in the Outside the Box, I met with some ten Senators Monday afternoon (as well as Congressmen in the morning), plus a lot of staff. Getting ten Senators in a room for 90-plus minutes is not so often done. I will report in this week’s letter about our conversation and my impressions.

But first, I was in Vancouver for a few days this week at the Agora conference. I had dinner with old friends Bill Bonner, Barry Ritholtz, David Tice, Frank Holmes, and Keith Fitzgerald. I had spoken that morning and my speech was well-received, getting a fair complement of laughs. I was somewhat on a roll. I mentioned that I think a lot of the better financial speakers are actually frustrated stand-up comics, and there was general agreement on that.

I say that to set up the next item. This past April I spoke at my own investment conference in La Jolla (co-sponsored with Altegris Investments). It was a brand new speech, and I did something I have not done in years: I actually practiced it several times, as I did not want to embarrass myself, given the quality of the other speakers. I came off the stage feeling that I had given the worst speech of my career. The room was absolutely silent. I normally get a lot of laughs. I was getting no reaction at all. As I made my way to the rear of the room I was actually quite depressed.

Then several people (people who cut me no slack) told me that it was the best speech they had ever heard me give. I was surprised and said, “But the audience was so quiet. How come?”

“John, you just walked them through a scenario that was so compelling and so fraught with regard to our problematic future that it was very sobering. There really was nothing to laugh at.” This from a man who has been very blunt with me and has heard me speak many times and tells me if I am off my game. I got the same comment a lot.

I am now using a different speech, so we are going to make the one from our conference available online to all those who have signed up for my accredited investor letter. It is the last speech of the conference to be posted, so now every one is online – speeches by David Rosenberg, Martin Barnes, Neil Howe, Gary Shilling, and more, plus the panel sessions. A very powerful lineup it was.

If you are an accredited investor (net worth of over $1.5 million), you can go to www.johnmauldin.com and click on The Mauldin Circle and fill out the form, and one of my worldwide partners will get in contact with you and give you access to the speech. And if you have not yet reached that status, you can still sign up, and my partner CMG, based in Philadelphia, will make sure you get access. These all are management firms that, like Altegris, have access to some of the best alternative investments and commodity funds I am aware of. Let them show you what adding some of the managers they represent can do for your portfolio. (In this regard, I am president and a registered representative of Millennium Wave Securities, LLC, member FINRA.) Please read the risk disclosures on the form and at the end of the letter carefully when you are thinking about alternative investments. And now to this week’s letter.

This week we are going to revisit some themes concerning the problems of the debt and the deficit. I am getting a number of questions, so while long-time readers may have read most of this in one letter or another, it is clearly time for a review, especially given the deficit/debt-ceiling debate. I will probably offend some cherished beliefs of most readers, but that is the nature of the times we live in. It is the time of the Endgame, where things are not as black and white as they have been in the past.

We are halfway through the year, and what a ride it has been. Today I will share my thoughts on what the next six months could look like, and endeavor to keep it short and simple, as we have a holiday weekend. There will be more than a few charts. What does the end of QE2 mean? What can we expect from Europe? Is a commodity bubble getting ready to burst? Is it really a bubble? There is a lot to cover.

I recorded a PBS show a month or so ago, and it is airing this weekend on a number of stations around the country, so look for details at the end of the letter. Now let’s jump in.

“All political thinking for years past has been vitiated in the same way. People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome.”

– George Orwell

“ Hindsight is not only clearer than perception-in-the-moment but also unfair to those who actually lived through the moment.”

– Edwin S. Shneidman, Autopsy Of A Suicidal Mind

Brinkmanship is defined as the practice of pushing dangerous events to the verge of disaster in order to achieve the most advantageous outcome. It occurs in international politics, foreign policy, labor relations, and (in contemporary settings) military strategy involving the threatened use of nuclear weapons.

This maneuver of pushing a situation with the opponent to the brink succeeds by forcing the opponent to back down and make concessions. This might be achieved through diplomatic maneuvers by creating the impression that one is willing to use extreme methods rather than concede. During the Cold War, the threat of nuclear force was often used as such an escalating measure. Adolf Hitler also utilized brinkmanship conspicuously during his rise to power. (More on ignoring events and Hitler later on.)

In the last 48 hours, so much news has come out of Europe that has me frankly shaking my head. It is a strange game of brinksmanship they are playing, and it is one we should be paying attention to (as if the brinkmanship played by US politicians over the debt ceiling is not enough). This week we look at what seems to be European leaders taking random walks through the minefield at the very heart of the European Experiment. As Paul Simon wrote, “A man sees what he wants to see and disregards the rest.” But first…

Would You Like to Read Over My Shoulder?

As you know, I read scores (if not hundreds) of reports and analyses each week to put together my letters. Wouldn’t you like it if I could filter for you what is important? The few things that you should read? What would it be worth to you to have someone with my years of experience and breadth of resources available to you as your own personal reader/filter?

I can be just that. I’ve now launched a new service called Over My Shoulder to bring you the very best 5-10 pieces I read each week.

I’ll call your attention to some of the most fascinating analysts out there, people with non-intuitive perspectives on some of the most pressing issues facing us as individual investors. Concerned about inflation/deflation? Wondering about the future for US markets and sovereign debt? Europe? It’s all here.

If you need cogent analysis and clear reasoning, this is the service for you. And if you want to see the data, charts, and graphics that back it all up, you’ll get them. Would that be worth just $39 every three months? What is just one piece worth to you that helps you make that critical decision?

My job is to find you the best of the best, making sure your radar is pointed at the critical issues and weeding out all the noise. If your time matters as much as your investments, click here to learn more: http://www.johnmauldin.com/overmyshoulder/recent/

And let me hasten to note, this weekly letter will not change. It will still be free, coming to you each weekend. And now on to this week’s letter.

This week I finish the two-part letter on the Endgame and give you my thoughts on the economy and how it all plays out over the next five years. This is the second part of a speech I gave last week at the Strategic Investment Conference in La Jolla. It is a rather bold forecast, and fraught with peril and likely errors, but that is my job here. Damn the torpedoes, etc. I must offer one large caveat! If the facts change so will my forecast, but this is the view into my very cloudy crystal ball as I see it today. As always, remember that those of us in the forecasting world are often wrong but seldom in doubt. Read accordingly.

But before we get there, two quick things. I want to really show my strong appreciation for the work done by my co-hosts, Altegris Investments, at the 8^th annual Strategic Investment Conference. We had a packed house with almost 500 people come to see what I think was the best line-up at an investment conference this year. Each year we say there is no way to get any better, and each year we somehow manage to do so. And that is due in no small part to the considerable effort of the team at Altegris. I am proud to be associated with them. This year we did video many of the speakers and panels, and over time we will figure out how to make some of this available. I will keep you posted.

Enemy of Spain

Second, Endgame continues to do well, so thanks to those who have purchased it, and if you haven’t already got your copy you should go to www.amazon.com/endgame and do so! And quick kudos to my co-author, Jonathan Tepper, brilliant young Rhodes scholar and head analyst at Variant Perception. Apparently, he’s on a small but prestigious list of enemies of Spain, according to El Mundo, one of the biggest Spanish newspapers, for the sin of pointing out that Spain is in a crisis (we have a whole chapter on Spain on the book). Their article appeared in print in the weekly finance edition, but is not online. Other papers have been called by government officials and asked not to quote him. Oddly, the people who helped inflate the enormous construction bubble and the incompetent government officials who denied for years there were any problems are not enemies of Spain. Go figure. I guess if you have to be on an enemies list, you could do worse than Spain (where, oddly enough, Jonathan spent most of his childhood growing up in a drug-rehab facility). Congratulations, young man! (Oh, and a publisher in Korea picked up the Endgame Korean-language rights, so we will soon be in bookstores in Seoul.)

And now to the second part of the Endgame. And for those who want to review the first part, you can read it at http://www.johnmauldin.com/frontlinethoughts/the-endgame-headwinds/.

I have written repeatedly about the Endgame in the weekly letter, as well as in a New York Times best-seller on the same topic. By Endgame I mean the period of time in which many of the developed economies of the world will either willingly deleverage or be forced to do so. This age of deleveraging will produce a fundamentally different economic environment, which the McKinsey study referenced below suggests will last anywhere from 4-6 years. Now, whether this deleveraging is orderly, as now appears to be the case in Britain, or more resembles what I have long predicted will be a violent default in Greece, it will create a profoundly different economic world from the one we have lived in for 60 years. This makes sense, in that the prior world was defined by ever-increasing amounts of leverage. Outright reductions in leverage or even a significant slowing of the rate of growth is a whole new ballgame, economically speaking.

In all this I have explained the various options facing the developed world, but I have refrained from putting forth my own estimates as to what will actually happen and what the environment surrounding that outcome will be. That is about to change. I have been giving this a great deal of thought and research. While my conclusions will be somewhat controversial (I know, surprise, surprise), with enough to offend almost everyone on some point, I hope that I can muster enough clarity to help you think through your own personal views and how you will respond to what I think will be yet another crisis on the not-too-distant horizon. Whether that is Crisis Lite or Crisis Depression is up to us and the politicians we elect. I argue that we need to choose most wisely, because we are at a crossroads that is as critical as any since 1940.

As I start this letter, I am on a flight to San Diego, where I will co-host my 8^th annual Strategic Investment Conference. As usual, I will be the last speaker on Saturday. This letter will be the beginning of that speech, and we will conclude (hopefully) next week. What I hope to do here is summarize the main points, add some new ones, and then move on to how I think the Endgame will play out. These next two e-letters will be among the more critical ones of the last few years. Feel free to forward, and if you are reading this letter you can join my one million closest friends and sign up for my free weekly letter at www.johnmauldin.com. (This letter may print longer than usual, as it will have a significant number of graphs.)

But before we jump in, many of you know that I am a serial entrepreneur. I look for business opportunities for inclusion in “the Mauldin companies.” My “hobby,” if you will, is looking at cutting-edge biotechnology. You have been asking for details and an update on one I mentioned last year. We partnered with a very serious biotech research firm, International Stem Cell Corporation, whose scientists discovered a patent-pending formula that rejuvenates skin. We continue to partner with them to help augment this breakthrough and, most importantly, to help fund their therapeutic research to find cures for very serious diseases. You can learn more at www.lifelineskincare.com/antiagingbreakthrough. Now, let’s get into the letter.

Albert Einstein is famously quoted as saying, “Compound interest is the eighth wonder of the world.” And compounding is indeed the topic of this week’s shorter than usual letter, but compounding not of interest but of inflation. As you might expect, I am giving a great deal of thought as to how we get out of our current financial dilemma of too much debt and deficits that are far too high. While I will use US data for our illustration, the principles are the same for any country.

This week I had the privilege of being on the same panel with former Comptroller General David Walker and former Majority Leader (and presidential candidate) Richard Gephardt. A Democrat to the left of me and a self-declared nonpartisan to the right, stuck in the middle and not knowing where the unrehearsed conversation would take us. As it turned out, to a very interesting conclusion, which is the topic of this week’s letter. By way of introduction to those not familiar with them, David M. Walker (born 1951) served as United States Comptroller General from 1998 to 2008, and is now the Founder and CEO of the Comeback America Initiative. Gephardt served in Congress for 28 years, was House Majority Leader from 1989 to 1995 and Minority Leader from 1995 to 2003, running for president in 1988 and 2004.

Some housekeeping first. We have posted my recent conversation with George Friedman on the Conversations with John Mauldin web site. And on Saturday we will post the Conversation and transcript I just did with David Rosenberg and Lacy Hunt, which I think is one of the more interesting (and informative!) ones I have done. You can learn more about how to get your copy and the rest of the year’s Conversations (I have some really powerful ones lined up) by going to www.johnmauldin.com/conversations. Use the code “conv” to get a discount to $149 from the regular price of $199. (If you recently subscribed at $199 we will extend your subscription proportionately. Fair is fair.)

And go to www.johnmauldin.com to contribute comments on this letter. I do read them!