Subscribe to John Mauldin's
FREE Publication:

Thoughts From the Frontline

Sign up for John’s free weekly letter and join 1 million of his closest friends.

We will never share your email with third parties

Thoughts from the Frontline

The Endgame Headwinds

April 29, 2011

Choose your language

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 8th 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 (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 Now, let’s get into the letter.

The Endgame Headwinds

Before we can get to how I think the Endgame of the debt supercycle plays out in the US, we need to quickly survey the current environment, and revisit (at least for long-time readers) a few basic economic themes that I will call the “headwinds” of economic growth. So many leaders in so many countries think that with the right policies they can grow (export) their way out of the…

Discuss This


We welcome your comments. Please comply with our Community Rules.


Page 2 of 3  < 1 2 3 > 

Evad Renter

April 30, 2011, 2:28 a.m.

It amazes me that my comments must first be “approved” by a moderator.  What a joke!  Mauldin uses his weekly newsletter as a way to sell stuff to his “closest friends.”  I’m sure Mauldin is a nice guy and an excellent father.  But let’s face it; he has been completely wrong about the “big picture” for the past two years.  After preaching “deflation” for two years, he’s finally admitting that the US has an inflation problem.  I’ve sent a few e-mails to Mauldin over the years.  He’s never responded to my e-mails.  Not even one time.  He doesn’t even acknowledge receipt.  I’m sure my comment will be “banned” by the moderator.  What happened to Freedom Of Speech?

Charles Breese

April 30, 2011, 1:01 a.m.

A couple of reactions:
a) my investment activities focus on companies which improve the productivity of their direct and indirect customers, so your analysis was music to my ears! If I had to select one sector to invest in for the rest of my life it would be MedTech, where I see huge opportunities for better patient outcomes at lower total cost, particularly in the area of personalised medecine. An example is cancer, where treatments typically work on only c.15% of the universe of patients with a given tumour - not only do they not work on the 85% but in certain cases actually cause damage - assays (based on genome knowhow) have been developed over the last couple of years which determine whether a patient falls within the 15% category or the 85% category, bringing huge potential societal benefits in terms of cost savings from not treating patients for which there will be no benefit and also reducing unnecessary damage to patients.

b) One of the most seemingly unpalatable consequences of the scenario which you describe is that many people will have to price themselves back into work by lowering their pay rates. In practise, I don’t think that over the medium term this will be as painful to individuals as it sounds due to the beneficial impact of productivity enhancing goods and services - the sufferer will be government expenditure due to the lower income and expenditure levels on which tax take is based.

Dave Scotese

April 30, 2011, 12:03 a.m.

“I think the benefits of police are clear. Schools. A professional military (its use can be up for debate). Financial regulation. Courts. Etc. Certainly, society functions better with these and other services…”

Certainly, when they are free, but they never are.  Every one of them costs too much as they are now, and there is very clear reason for that: no bottom line.  Check out the work of John Taylor Gatto or Charlotte Thompson Iserbyt to educate yourself on “school”.  As for all the other functions of government, please realize that ALL of its resources are taken from citizens by force, and the main task for those who get it is to justify the expense, somehow.  It would be nice if smart people such as yourself stopped helping them.

There is no reason to believe that the value in all the services you mentioned would not be purchased willingly in a free market.  Well, except that whole “original sin” and “humans are naturally vicious and depraved” rot that leaders and rulers always spout in order to justify their dominion over others.  You’re great at economics and financial analysis.  I hope your progress in philosophy catches up so you can join the “Revolution”.  Bastiat might help.

Mike Lenahan

April 29, 2011, 11:29 p.m.

I can’t help but think that Henry Ford was spot on when he said if you want to increase the economic wealth of your country you must increase the wages of its workers.  For over 30 years the global economy has done the exact opposite. To make matters worse the race to lower wages is picking up pace and spreading to more high end professions. 

No longer is it just manufacturing labor that is being done at wages 50 to 80% lower than the old rates of developed economies.  A greater percentage of the higher pay, skilled work in IT, engineering, etc is being done in low wage countries.  New technologies and the growing quantity and quality of the work force in emerging economies is obsoleting many workers in developed economies faster than they can be repurposed.

I would argue that this trend has been one of the major causes of the excessive build up in debt throughout the developed economies.  Without these debt levels the primary consumers in the global economy (America and Europe) could not pull forward enough consumption to grow the world economy and maintain our desired standard of living.

A topic that I would like to see you address in future writings is what effect would it have on the overall wealth of the global economy to apply Henry Ford’s strategy of increasing the wages of the workers in low wage countries. 

As long as Americans are willing to keep buying most everything we use from countries that pay much less, regulate less and pollute much more how do we avoid continued downward pressure on our earning’s power and job growth?  Globalization worked for awhile, but it appears to be grinding up Western economies for the last ten years and the gears of the blender are starting to turn faster and faster….

Luca Salvatore

April 29, 2011, 10:42 p.m.

Great analysis, John, as usual.
The charts that correlate governament spending to (reduced) growth should be part of the political debate all over the world. Sadly, they are not.
Just a quick mention to the fact that correlation is no causation, so the reverse mught actually be just as right (when growth stalls, States are willing to become larger for a number of reasons)

In response to Mitchell critique (a few posts down), isn’t that the scenario Rodger is talking about what John in many earliear articles depicted as QE and QE2?
And has not John already made clear that there are well set limits to the amount of cycles of that computer button a State can make?
If you ease too much, you end up with a T bond worth much less than a T steak.

Pan Skeptic

April 29, 2011, 8:59 p.m.

Grover Norquist and his ilk have preached for years “Starve the Monster,” “Starve the Beast.” Without ever publicly acknowledging them, George Bush did just that. By waging two unpaid for wars, cutting taxes on the wealthy and imposing an unfunded health care mandate, Bush effectively blew up the United States government’s finances. Now the very people who supported him act surprised that we’ve got a mess on our hands. Where were they for eight years, in a coma?

Citing the polls in this article was done very selectively. Yes, the people are against having taxes raised across the board. But an overwhelming majority are in favor of eliminating tax breaks for the rich, as Paul Ryan just found out to his surprise, and eventual political cost. This never gets any attention in this column - it’s always passed over in awkward silence.

Furthermore, I would hesitate to base any arguments on research from the Heritage Foundation. Most of their work has been shown to be shoddy, with ideology first, and facts malleable.

If we are going to discuss the future political leadership in this country, let’s not forget who got us into this mess, then exercising selective amnesia, is now engaged in a fullblown flight from reality. The hypocrisy, hysteria and incoherent fantasy emanating from the American right is of historical proportions.

Like Obama or not, he’s the only one running for President who is not either a total opportunist or a total loony.

Norman Monson

April 29, 2011, 8:06 p.m.

You make a blanket condemnation of tax increases as anti-growth. Yet the issue is whether allowing Bush tax cuts on the wealthy will dampen growth. No evidence that’s so. Imposing taxes on the rich at the same rate that prevailed under Clinton certainly didn’t result in slow growth and rising deficits. Taken to the extreme raising taxes on the wealthy to the levels prevailing during WWII didn’t push us into a depression or even dampen output (although incremental work payoffs at the margin left high paid professionals with only 8 cents on the dollar for additional work.) The difference, of course, is that everyone saw that sacrifice was a patriotic duty. Maybe we should restore that sense of duty before the impending crisis and no tax increase mantra sinks us.

robert Gilroy

April 29, 2011, 7:46 p.m.

I suggest that you construct with Paul Krugman a serious point by point discussion of these very concepts presented in this format and the NYT simultaneously over perhaps 4-6 weeks.  You are correct that a lot of education for “the regular folks” must be done.

andre therien

April 29, 2011, 7:11 p.m.

How many times have we heard the refrain about most critical letters ?  Is your goal being NYT best seller, or writing a great book ? This letter is a re-hash with nothing new. I admire you in many ways, but when you under-estimate your readers you make a mistake. Are you about serious economic issues or making money ? Mixing face cream with economic analysis is not a credible letter. Sure, your web-site is great, but in the end, content will prevail. regards. andre.

Rodger Malcolm Mitchell

April 29, 2011, 6:05 p.m.

“Government began to grow as a percentage of overall GDP in the latter part of this cycle. In addition, politicians created large (well, huge) entitlement programs of pensions and health-care benefits that require significant taxes and, as we shall see, are unsustainable in the our present medium term.

There is a limit to how much money an individual or country can borrow. We all intuitively know this. If you grow your debt faster than your income and your ability to service the debt over a long period of time, people will eventually stop loaning you money. This is true for individuals, businesses, and nations.”

The above is 100% false for a Monetarily Sovereign nation. 

1. In such nations, taxes do not pay for government spending.  In fact, if taxes fell to $0 or rose to $100 trillion, this would not affect by even one dollar the government’s ability to spend. For that reason, all debt not only is sustainable, but could be eliminated simply by trading currency for T-securities—a push of a computer key.

By contrast, monetarily non-sovereign nations (i.e. the PIIGS) do use taxes to pay for spending.

2. What is true for individuals and businesses (which are monetarily non-sovereign) is not true for the U.S., Japan, China, Canada, Australia and other Monetarily Sovereign nations.  Not understanding the difference between Monetary Sovereignty and monetary non-sovereignty is the single most common error in economics.

Rodger Malcolm Mitchell

Page 2 of 3  < 1 2 3 >