Outside the Box

Running through a minefield, backwards

John Mauldin

July 27, 2010

Before we get into today's Outside the Box I want to clear up a few ideas from this weekend's letter. There have been posts on various websites equating my piece on deflation with Paul Krugman. They say I am advocating kicking the can down the road and not reducing the deficit.

Wrong. What I have been trying to point out for several years is that we have no good choices. We are down to bad and very bad choices. The very bad choice (leading to disastrous - think Greece) is to continue to run massive deficits. The merely bad choice is to reduce the deficits gradually over time. As I try to point out, reducing the deficits has consequences in the short term. It WILL affect GDP in the short term. Krugman and the neo-Keynesians are right about that. To deny that is to ignore basic arithmetic.

I am not for kicking the can down the road. Not to begin to deal with the deficits, and soon, risks an even worse problem. But - and this is a big but - I don't want to stomp on the can, either.

Now, let's get into this week's Outside the Box. I offer you a very intriguing essay by those friendly guys from Bedlam Asset Management in London. They argue that Belgium's sovereign debt should be suspect, and is the country that could be a "sleeper" problem. This is a very interesting read, with a lot of history. It is not too long and very interesting. Enjoy. (www.bedlamplc.com)

Your thinking sovereign debt is the biggest bubble of all analyst,

John Mauldin, Editor
Outside the Box

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Running through a minefield, backwards
Part II - farewell Flanonia?

From Bedlam Asset Management

The last issue concentrated on sure sovereign default by Greece, Spain and Portugal - partly due to hopeless economic numbers but more because of various 'soft' issues. For, just as the numbers in a company's balance sheet theoretically provide all that is required to understand and value it, the reality is that squishy issues, such as the quality of management,…

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