[...]... Mar-06 Mar-04 Mar-02 Mar-00 Mar-98 Mar-96 Mar-94 Mar-92 Mar-90 Mar-88 Mar-86 Mar-84 Mar-82 Mar-80 Mar-78 Mar-76 Mar-74 Mar-72 Mar-70 Mar-68 Mar-66 Mar-64 Mar-62 0% The Beginning of the End 19 18% 40,000 U.S Debt ($ bns) 35,000 10yr Yield 16% 14% 30,000 12% 25,000 10% 20,000 8% 15,000 6% 4% 5,000 2% 0 0% Mar-80 Jul-81 Nov-82 Mar-84 Jul-85 Nov-86 Mar-88 Jul-89 Nov-90 Mar-92 Jul-93 Nov-94 Mar-96 Jul-97... pointing to the same outcome, as their cost of debt keeps rising And Ireland? The Baltics? There is a limit to how much debt you can pile on As the work of Reinhart and Rogoff points out in This Time Is Different (2009), there is not a fixed limit for debt or some certain percentage of GDP where it all breaks down Rather, the limit is all about confidence Everything goes along well, and then “bang!” it doesn’t... Extension of debt is not bad if the borrower has the ability to repay Extension of debt turns into a problem when debt is not repayable That is the essence of Minsky’s Ponzi finance.” PartI 30 January 2011; 13:10:34 The End of the Debt Supercycle 13 I (John) was talking with Martin a few months ago, and the topic turned to the culmination of the debt supercycle Martin said we are nowhere near the end, as the. .. we lay out the case that there is a massive reset of the global economy, some of it for the good and some of which will make us very uncomfortable, depending on the country in which you reside But as individuals and governments come to the end of their ability to borrow massively, growth must come from different sources How Did the Debt Supercycle Come About? Stability leads to instability, and success... Without massive assistance, Greek debt would be unmarketable Default would be inevitable (We still think it is!) The limit is different for every nation For Russia in the late1990s, it was a rather minor total debt- to-GDP ratio of around 12 percent Japan will soon have a debt- to-GDP ratio of 230 percent! The difference? Local savers bought government debt in Japan and did not in Russia The end of the. .. private-sector debt The current editor of the BCA, Martin Barnes, has greatly expanded on the concept (And of course, Irving Fisher talked about the long debt cycle in his famous 1933 article.)Ã Essentially, the debt supercycle is the decades-long growth of debt from small and manageable levels, to a point where bond markets rebel and the debt has to be restructured or reduced A program of austerity must be... the debt supercycle does not have to mean calamity for each country, depending on how far down the road they are Yes, if you are Greece, your choices are between very, very bad and disastrous PartI 30 January 2011; 13:10:34 14 THE END OF THE DEBT SUPERCYCLE Japan is a bug in search of a windshield Each country has its own dynamics Take the United States The United States is some way off from the end. .. deficits of 10 percent of GDP forever At some point, the Fed will either have to monetize the debt, or the bond market will simply demand an ever-higher interest rate Why can’t we go the way of Japan? Because we do not have the level of savings they have traditionally had But their savings levels are rapidly declining, which says that if they want to continue their deficit spending at 10 percent of GDP,... sovereign debt —George Soros speech at the Institute of International Finance in Vienna, June 10, 2010 T he bankruptcy of Lehman Brothers in the fall of 2008 drew the curtain on a very long 60-year Act I in the debt supercycle You could feel in the air the end of a golden period, when everincreasing quantities of debt could lead to ever more consumption and “wealth.” As stock markets crashed globally and the. .. malaise of the 1970s as the bull market of the 1980s and 1990s gave us the illusion of wealth and an easy future Even the crash of Black Monday seemed a mere bump on the path to success, passing so quickly And as interest rates came down and money became easier, our propensity to acquire things took over In Europe, the advent of the euro gave southern Europe the interest rates of the German Bundesbank, and . visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Mauldin, John. Endgame : the end of the debt supercycle and how it changes everything / John Mauldin and. cm. Includes index. ISBN 97 8-1 -1 1 8-0 045 7-9 (hardback); ISBN 97 8-1 -1 1 8-0 580 6-0 (ebk.); ISBN 97 8-1 -1 1 8-0 580 7-7 (ebk.); ISBN 97 8-1 -1 1 8-0 580 8-4 (ebk.) 1. Debt. 2. Debts, Public. 3. Debts, External. 4. Recessions 30 January 2011; 13:1:32 ENDGAME FFIRS 30 January 2011; 13:1:32 FFIRS 30 January 2011; 13:1:32 ENDGAME THE END OF THE DEBT SUPERCYCLE AND HOW IT CHANGES EVERYTHING JOHN MAULDIN JONATHAN TEPPER John