Thoughts from the Frontline

There Will Be Contagion

By John Mauldin

March 10, 2012

Choose your language

Sarkozy: Problem Solved, Or… Germany to Sarkozy: It’s Not Over
The ISDA Steps Up
No Winners in Ugly Greek Debt Deal, Only Lessons
And By the Way, Close Your Borders
The Next Greek Tragedy
Orlando, Stockholm, Paris, and Staying Young

… (December 11, 2009) – Greece's prime minister, George Papandreou, told reporters in Brussels on Friday that European Central Bank President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker see "no possibility" of a Greek default, Bloomberg News reported. Papandreou also said that there was no possibility of Greece leaving the euro area, according to the report.

… (January 29, 2010) – There is no bailout and no "plan B" for the Greek economy because there is no risk it will default on its debt, the European monetary affairs commissioner, Joaquin Almunia, insisted on Friday.

… (September 16, 2010) – "Restructuring is not going to happen. There are much broader implications for the eurozone should Greece have to restructure its debt. People fail to see the costs to both Greece and…

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John Bengfort

April 5, 2012, 11:09 a.m.

I would like to see John comment on Jim Quinn’s THE BURNING PLATFORM series (1,2,3) of articles:
  http://www.theburningplatform.com/?p=32217
based on the book THE FOURTH TURNING by Strauss and Howe, 1997.

Carl Bechgaard

March 11, 2012, 5:13 p.m.

John, Very good article. You write “I love the internet”. Is there is risk to our freedom in cyberspace from the ITU? Here is a link to a letter to the editor from a member of The Boston Consulting Group which comments on a recent article in the Wall Street Journal on potential control of the internet by countries that would probably like to limit the freedom of internet users:

http://online.wsj.com/article/SB10001424052970204653604577249353693727494.html?KEYWORDS=the+un+threat+to+internet+freedom#articleTabs=article

The article by Robert M. McDowell of the FCC is linked in the letter as well as here:

http://online.wsj.com/article/SB10001424052970204792404577229074023195322.html

I am not qualified to judge whether this is serious or a false alarm. Hopefully, you or some your many friends are. If there’s is something to it, would it be worthwhile taking it up in one of your letters?

Kind regards
Carl Bechgaard
Eastham, MA

John Bengfort

March 11, 2012, 2:29 p.m.

It surely would be interesting to have a conversation with Kyle Bass given that Hedge Funds will be very interested in the rest of Europe…Soros in particular. Good article.

A Smith

March 11, 2012, 7:29 a.m.

Your claim that “Total European debt is at 443%, well above US debt of 350%” is incorrect. I think the reason is that in an attempt to bend stats to back up your theme you have made a mistake and are using an absolute number rather than a debt level as a percentage of total GDP ratio, which is of course more relevant.

As a percentage of GDP the EU’s debt level is LOWER than the US’s.  The last official stats show that the US total external debt as a % of GDP is above 100% - approx. 101%. Contrastingly the EU’s is at about 80%. Even if you strip out the Eurozone, Europes debt to GDP ratio is still lower at 85%.

Roger Ellman

March 11, 2012, 7:21 a.m.

John


Excellent article, accurate and never expressed points about Greece, Italy, France and Spain et alia (et alia again - as you say USA as well!!).

My most energetic request is please do throw up some gems (I suspect there will be some) of wisdom from the Life Extension Conference - I’d like to be reading and commenting upon your writing for many decades to come, also!

Best
Wishes
Roger

John Marsland

March 11, 2012, 1:21 a.m.

John, the $64T question is “When?”.

It looks like the US economy is going to muddle along and the stock market will lead it, so now is a reasonable time for investing. But will the sh*t hit the f*n in 2 years? or will it be 5 years? or will it be 2020?

The biggest danger, I think is to stick your head in a bunker, and your money in a bank thinking the danger is imminent. Your writing encourages people to have bunker thinking, which is dangerous in itself.

I think you have to more clearly address the question of “when?” and lay out your most likely scenario for the next 5 years.

Giovanni Isaksen

March 10, 2012, 10:46 p.m.

Read this report today by Carmen M. Reinhart (of ‘This Time Is Different’) and M. Belen Sbrancia entitled: “THE LIQUIDATION OF GOVERNMENT DEBT” where they posit that with ‘financial repression’ by the Govt. the deficit can be paid down without extremely high inflation.

They describe financial repression as operating through directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.

Here is the link: http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf

Pierre Gandolfo

March 10, 2012, 10:02 p.m.

Thanks for this nice series of newsletters on Europe. But how come the â?¬ is not going down, on parity with the $, especially when considering the 1.3Tâ?¬ ECB printing to shore up the balance sheets of EC-based commercial banks?

Bill Majew

March 10, 2012, 6:30 p.m.

How long can countries kick the can down the road?  In other words, when may the “end game” occur if Leadership’s typical response is to use the printing press, maintain/increase fiscal deficits and impose bondholder losses?

Winston Adams

March 10, 2012, 5:43 p.m.

Is it just me or does anyone else think the biggest story in this article is not the risk of the inevitable Greek default, but the risk of living beyond the need for truth among our key institutional and political leaders?  For how long will we accept as “inevitable” that politics and bureaucrats must above all else ignore reality in favor of the favors that in a next election will ensure a continuing public service post, at the expense of the truth and our children’s future.

Let’s hear some more wise and unheeded words from Thomas Jefferson, who said in a letter to Peter Carr in 1785, “It is of great importance to set a resolution, not to be shaken, never to tell an untruth.  There is no vice so mean, so pitiful, so contemptible; and he who permits himself to tell a lie once, finds it much easier to do it a second and a third time, till at lenght it becomes habitual; he tells lies without attending to it, and truths without the world’s believing him.  This falsehood of the tongue leads to that of the heart, and in time dpraves all its good disposition.”

When the “youth” having no better example of upright moral behaviour than that of the principal protagonists of the EU and its subsidiary finacial institutions, contagion is a good word for insurrection when the 50% unemployed youth of Greece hit the road to other nations.  There’s a good lesson to be learned they didn’t take into account in this article—remember the leaders of the the “Worker’s Solidarity Movement”  otherwise known as Communism?

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