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  • The New Normal of Healthcare Spending

    Last year I was one of the very few who suggested that the implementation of Obamacare could cause a recession (see more below). Such a suggestion was universally dismissed by all right-thinking economists, and for very good reasons based in sound economic theory, I might add. But sometimes the real world neglects to adhere to our models and theories, and that was my concern.

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  • Austerity is a Consequence, not a Punishment

    Two seemingly different questions and comments from readers and friends crossed my path the last few days, but I saw a definite connection between them. The first question was, Why do we pursue austerity when it seems not to work? And then many readers wrote to ask this week, What do I think about the real problems that are surfacing in the Rogoff and Reinhart assertion that debt above a ratio of 90% debt to GDP seems to slow economic growth by 1% (especially since I have quoted that data more than a few times)? We'll deal with each question separately and then see if we can connect the dots.

    The first question comes from correspondence I have had with Ms. Aga Barberini, who works in the investment world in Milan, Italy. She came there from Poland some 20 years ago. The first part of her note contains the question on austerity, but I'll pass along more of her letter, as I think it will give us all some insight into the seeming chaos that voters are facing in choosing a path for Italy. (And I hope my editors leave some of the charming grammar in her letter. You can almost hear the musical tones of her Italian English.)

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  • The Quest for Certainty

    The last two weeks we have been looking at the problems with models. First we touched on what I called the Economic Singularity. In physics a singularity is where the mathematical models no longer work. For example, models based on the physics of relativity no longer work if one gets too close to a black hole. If we think of too much debt as a black hole of sorts, we may understand why economic models no longer work. Last week, in “The Perils of Fiscal Cliff,” we looked at the use of fiscal multipliers by economists in order to argue for or against governmental economic policies. Do you argue for austerity, or against it? There is a model that will support your case, most likely using the same data that your adversary uses.

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  • The Perils of the Fiscal Cliff

    Having been to all the countries listed above, with the exception of Uganda (although I have been to 15 countries in Africa, several bordering Uganda), I am most happy to confirm that they are all different. Just as you would grant me the fact that the US is not the UK and that France is not Argentina. To paraphrase Tolstoy, dysfunctional countries come by their unhappy sets of circumstances in their own individual ways.

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  • The Transparency Trap

    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.

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  • Back to the Basics

    In This Issue:

    GDP = C + I + G + Net Exports
    Increasing Productivity
    The Trillion Dollar Question
    A Summer of Ultimatums
    Vancouver, New York, and Maine

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  • A Random Walk Through the Minefield

    In This Issue:

    Would You Like to Read Over My Shoulder?
    Dysfunctional, Thy Name Is Europe
    What Happens if the Greeks Default?
    Trigger Points and Evasive Action
    A Random Walk Through the Minefield
    Gaming the GDP Numbers
    Tuscany (And I Get the Irony)

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  • The Endgame Headwinds

    In This Issue:

    The Endgame Headwinds
    If Something Can't Happen…
    GDP = C + I + G + Net Exports
    Increasing Productivity
    Toronto, Cleveland, LA, Philadelphia, Boston, and Italy

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  • The Future of Public Debt

    In This Issue:

    The Future of Public Debt
    A Bit of Background
    Drastic Measures
    The Future Public Debt Trajectory
    Debt Projections
    Phoenix, Tokyo, and London

    This week I find myself in Bangkok, and I must admit to enjoying the experience a great deal, so much so that I am going to preview a portion of my coming book, Endgame, so that I can go back out and play tourist. Next week I get back to my more or less regular schedule, but I think you will enjoy this first portion of chapter six, where we look at an important paper from the Bank of International Settlements on 'The Future of Public Debt.' It is not a pretty one. We are watching one of the last great bubbles begin to deflate - the bubble of government and government debt - all over the developed world. This is a serious weight that will be a drag on our growth, and it is interesting to contemplate as I sit in Bangkok, a city that is vibrant and teeming with opportunity.

    Endgame will be in the bookstores in a few weeks, but let me once again ask you to not pre-order the book from Amazon or online. Pre-order books do not get into the book sales numbers (long story and more information than you want to know). I encourage you to pre-order from your local book store if you have one. Let me note that in the portion below, the pronoun we is used a lot. It is not the royal we - I do have a co-author, Jonathan Tepper, and this book has very much been a collaboration. More on some Thai thoughts at the end, but let's jump into today's Thoughts from the Frontline.

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  • An Excerpt from Endgame

    In This Issue:

    The Burden of Lower Growth and More Frequent Recessions
    Three Structural Changes
    Lower Trend Growth
    Thailand, Phoenix, and Japan


    Tonight (Thursday) I am flying to Thailand and will 'lose' my normal Friday writing day, so I am going to give you a preview of my new book, Endgame, out and in the bookstores next month. This is the beginning of chapter four, and it stands alone quite nicely. It will print out a little longer than normal, as there are a lot of graphs. My co-author Jonathan Tepper and I deal with why there will be slower growth, more volatility, and more frequent recessions in our future.

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  • A Bubble in Complacency

    In this issue:

    The Recent GDP Numbers -; A Real Statistical Recovery
    Consumer Spending Rose? Where Was the Income?
    A Bubble in Complacency
    Egypt
    Rosie, Las Vegas, Phuket, and Bangkok


    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.

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  • The Unsustainable Meets the Irresistible

    This week’s letter is a result of two lengthy conversations I had today, which have me in a reflective mode. Plus, I finished the last, final edits of my book, all of which is causing me to mull over the unsustainability of the US fiscal situation. There is a true Endgame here, and it may happen before we are ready.

    The first conversation was with Kyle Bass, Richard Howard, and Peter Mauthe, over lunch (more on Peter, who has come to work with me, below). Kyle is the head of Hayman Advisors, a very successful macro hedge fund based here in Dallas. Then I recorded a Conversation with David Rosenberg and Lacy Hunt, which is one of the best we have ever done. Subscribers will be very happy. The new Conversation with George Friedman is now online, too. You can learn more about Conversations with John Mauldin at www.johnmauldin.com/conversations/.  Now, to this week’s letter. My goal is to make this one a little shorter than normal. We’ll see how I do.

     

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  • Thinking the Unthinkable

    Last week, in the first part of my annual forecast, I suggested that 2011 would be better than Muddle Through, with GDP growth in the US north of 2.5%. World GDP growth should be even better. This week we look at what I see as the real downside risks to that prediction. Oddly enough, the risks are not in the US but on the other side of both our oceans, in Europe and China. Plus, we will visit a few other items, assuming we have space (Bernanke’s recent speech just screams for some comments).

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  • Forecast 2011: Better than Muddle Through

    It is time once again to throw caution and wisdom to the wind and actually make my 11th annual forecast. I have to admit this is the most stressful letter I write each year. I do at least 5-10 times more research and thinking about this issue than any other. On a positive note, this may be one of the more optimistic forecast letters I have done in a long time. But there are some asterisks, as always. We will survey the world, trying to peer through the fog of the future. There are some very interesting side trails we will want to explore. Did you know some events in Russia could have real ramifications for inflation in China, the US, and the world? I pay attention to the background details and bring them to you. So settle back as we tour the world.

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  • Kicking the Can Down the Road

    How often did we as young kids go down the street kicking a can? 'Kicking the can down the road' is a universally understood metaphor that has come to mean not dealing with the problem but putting a band-aid on it, knowing we will have to deal with something maybe even worse in the future.

    While the US Congress is certainly an adept player at that game, I think the world champions at the present time have to be the political and economic leaders of Europe. Today we look at the extent of the problem and how it could affect every corner of the world, if not played to perfection. Everything must go mostly right or the recent credit crisis will look like a walk in the Jardin des Tuileries in Paris in April compared to what could ensue.

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