{"id":402,"date":"2012-02-02T21:37:38","date_gmt":"2012-02-02T21:37:38","guid":{"rendered":"http:\/\/www.thebizsense.com\/views\/?p=402"},"modified":"2012-02-03T19:18:40","modified_gmt":"2012-02-03T19:18:40","slug":"crisis-explosion-long-way-off","status":"publish","type":"post","link":"https:\/\/www.thebizsense.com\/views\/featured\/crisis-explosion-long-way-off","title":{"rendered":"Debt Crisis Explosion: Still a Long Way Off"},"content":{"rendered":"
\"John<\/a>

John Mauldin - Endgame<\/p><\/div>\n

Endgame, John Mauldin’s much-praised book on “the end of the debt supercycle and how it changes everything,” is an excellent backgrounder to the changed global environment in which we now have to invest.<\/p>\n

The problem is debt. Too much of it. Debt \u201cgets to the point where something has to give,\u201d Mauldin says. The inference is that we\u2019re close to a major crisis. And the markets may be ignoring the danger, just as they failed to anticipate the catastrophic First World War.<\/p>\n

Commonly-quoted debt ratios such as 80, 100 or even 200 per cent of GDP seriously underestimate the scale of the problem because they ignore countries\u2019 legal commitments to pay the huge future costs of pensions and medical care for ageing populations.<\/p>\n

And the time left to do something about that, by raising retirement ages and reducing benefits, is running out because of the growing political power of the beneficiaries to resist such cuts. Within a decade the elderly will constitute more than half of all voters in Europe and North America.<\/p>\n

Policymakers are deeply divided over what to do to deal with the problem of excessive debt.<\/p>\n

\u201cThe Federal Reserve and central banks in general are currently attempting a major and highly experimental operation on the economic body, without benefit of anaesthesia,\u201d Mauldin says.<\/p>\n

They are \u201ctesting the theories of four dead white guys: Irving Fisher (representing the classical economists), John Keynes (the Keynesian school), Ludwig von Mises (the Austrian school) and Milton Friedman (the monetarist school).\u201d<\/p>\n

The crisis could still be a long way off. Martin Barnes of Canada\u2019s highly-respected BCA consultancy, which originally developed the concept of a debt supercycle, says we\u2019re nowhere near the end of it yet.<\/p>\n

We\u2019re not yet experiencing the global develeraging that produces another great depression, as the bubble of total debt continues to inflate, with government debt rising much faster than private-sector debt is falling.<\/p>\n

Currently \u201cgovernments can print money and borrow like crazy without provoking inflation because of slack in productive capacity created by the recession.\u201d<\/p>\n

We have the absurd current situation, where investors are prepared to pay governments to look after their money \u2013 negative interest rates in some cases, with negative real (inflation-adjusted) rates commonplace.<\/p>\n

But that cannot last. At some stage, \u201cyou run out of suckers to buy government debt,\u201d as Mauldin puts it.<\/p>\n

Lots of nasty things are likely to happen, sooner or later:<\/p>\n