Podcast

John Mauldin: It's Time to Make the Hard Decisions

Friday, January 27, 2012, 10:24 PM

Back in the 1930s, Irving Fisher introduced a concept called the 'debt supercycle.' Simply put, it posits that when there is a buildup of too much debt within an economy, there reaches a point where there simply is no other available solution but to let it rewind.

We are at that point in our economy, as are most other major economies around the world, claims John Maudlin, author of the popular Thoughts from the Frontline newsletter and the recent bestselling book Endgame: The End of the Debt Supercycle and How It Changes Everything.

For the past several decades, excessive and increasing amounts of credit in the system have allowed us to live above our means as both individuals and nations. We've been able to have our cake and eat it, too. Now that the supercycle has ended and the inevitable de-leveraging cycle is staring us in the face, we will be forced to set priorities in a way that has been foreign to our society for over a generation.

On the Debt Supercycle

You can’t look to monetary policy for help (which will try to stimulate businesses to get more debt) because debt is the problem. If you are drunk and you need to cure yourself; another fifth of the whiskey is not the answer. So when debt becomes the problem, when it gets to be too much, more debt is not the issue. You've just simply got to work it off. There’s no easy way out of it. And, it takes years to work through it. It takes a long time, generally 60 to 70 years, in the US's case for these debt cycles to build up. It’s when you can no longer adequately service your debt and the market loses confidence in your ability to service the debt at a price that it finds adequate.

On the Slow-to-No-Growth Future

The problem is, there are only really two ways that you can deal with the debt. You can grow your way out of it, which is what you can do in normal business cycles. For most times in most places, we can grow our way out of debt problems, which is what the central bank is coming in and trying to do. The problem is, when you’re at the end of the debt supercycle, when you’re running up against your ability to borrow money, that liquidity no longer works.

As Fisher pointed out, the time to solve the debt bubble is before it becomes a bubble. He was wanting separation of commercial banks and lending. He wanted a much less fractional-reserve-based banking because he wanted the debt to keep from building up past levels that we saw in the 1920s. He saw that as something that was so bad that it created the Depression. 

So you can either repudiate the debt, you can default on it, you can monetize it, you can try to grow your way out of it, but you’re going have to deal with it. And there’s no easy way, when you’re at the end of the debt supercycle, when debt has become too much. Printing money doesn’t work.

Now, upon reflection and thinking about it, we’ve gone too far. And, this is where they are in Europe. Japan is getting very, very close to that moment. I keep saying, I think Japan is a bug in search of a windshield. I think they’re going to collapse. Quite frankly, the credit crisis that Japan is going to have is going to be far more serious than Greece. Japan makes a difference. They’re a big country. Greece is an ant hill.

We in the U.S. can solve our problems, but not without paying a large price. We’re going to be locking in a slow-growth economy. It’s going to be very frustrating for politicians, because they are going to want to come in and sprinkle pixie dust on the economy and make something happen. And the reality is, we can’t.  And that’s a frustrating position. It’s five or six years of slow-growth economy. 

On Confidence (or Lack Thereof) in Our Leadership

There's a great line that people do not accept change until they see the necessity, and they only see the necessity in moments of crisis.  

Now, sadly, simultaneously we’re seeing that much of the developed world is going to have this crisis all at the same time, you know, within three to four years of each other. That’s not good for world growth. It’s not good for globalization. We’re at a place where we have to make hard decisions.

And when you get politicians with a crisis, it’s hard to say what they’re going to do. When you read the stories of how decisions are made by politicians in the middle of a crisis, it’s not comforting. I mean, they’re picking up the phone to each other and saying, "What do you think we should do?" They are working it out as they go along. There’s no master plan here. There’s nobody with a playbook. 

Click the play button below to listen to Chris' interview with John Mauldin (runtime 38m:34s): 

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John Mauldin is a financial commentator and a New York Times best-selling author. Each week, over 1 million readers turn to Mauldin for his views on Wall Street, global markets, and economic history.

Mauldin’s weekly e-newsletter, Thoughts from the Frontline, was one of the first publications to provide investors with free, unbiased information, and guidance. Today it claims to be the most widely distributed investment newsletter in the world.


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50 Comments

Arthur Robey's picture
Arthur Robey
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Like there's no tomorrow

Thank you for your thoughts Chris and John.

I have not read John Maudlin's book therefore I am open to correction.

It seems to me that inadequate attention is paid to the physical world and the constraints that these impose apon us.

How about Peak Phosphorus which is irreplaceable as the energy carrier of life in ATP.? What is the cycle of that? Are we implying that this too is just a supply and demand problem? If the price is right the phosphorus will appear? Well, the price might be too high. People might just not have enough of this "money" stuff to competitivly bid for the remaining stocks of oil so that the miners can make a profit digging it out of the ground in far away Africa. Too many real problems are glossed over.

I am not "to the Left" of anything. The fact that our civilization is collapsing does not fill my heart with boundless joy. I love root canal work just like James Howard Kunstler. But I do not think that we are going to be in a position to make choices.

I get from conversation that this is all very normal and that we will see it play out according to script, just like it did before. We have just had a wild party with free energy. People have been breeding like there is no tomorrow.

Gail Tyverberg (Gail the Actuary) has this interesting graph for you.

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Damnthematrix
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Like there's no tomorrow

Ah yes, the Club of Rome charts.......  Sobering stuff.

I get Mauldin's newsletters, and he is certaily interesting and mainly on the ball, but you are right Arthur, he has no idea of Peak Everything..... or at least he never ever mentions it in his newsletters.  Has anyone read the book?  Does he mention Resource Limitations in it?

Mike.

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ewilkerson
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Morning guys.  I have

Morning guys.  I have listened to the podcast three times now, and of course he gets the debt part.  But I think he is completely naive about politics.  There is NO way the Dems. and Repubs. could work on this.  We have seen it too many times.  It will take a total collapse of the dollar to fix it.  Why do you think the National Defense Authorization Act  repealed the 1878 the Posse Comitatus Act and suspended Habious Corpus?  The government is preparing for the wost.  Things are speeding up so quickly we may not have the time.

Ernest

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KugsCheese
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US is Toast

who has the 'grade a' butter?

write a book?  who reads books anymore.  let's just yell and scream.

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ewilkerson
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You make a good point

You make a good point Kugs.  The butter I had in New Zealand was about the best I have had.  If anyone wants to listen to Jim Rickards new take on things here is the link.

www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/1/28_Jim_Rickards_files/Jim%20Rickards%201%3A28%3A2012.mp3

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Mark_BC
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Interesting piece but as

Interesting piece but as with virtually 100% of economists I've heard from, whether Austrian or Keynesian or anything in between, there seems to be this attitude that growth is good, and that's what we should be striving for. This debt problem is going to kill growth for a while until we solve it through whatever means we end up doing, then we can revert to growth and a return to some degree of prosperity..

This attitude has got to change. Growth IS the problem! Economists are the problem! They need a fundamental shift in their attitude to how economies function, because growth will not return! His disbelief in the reality Peak Oil is an all too typical symptom of this denial, and misunderstanding of how the real physical world interacts with the financial world which doles out that natural wealth amongst 7 billion of us.

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Natufian
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Complete denial.

This Mr. Mauldin is in total denial and completely oblivious to the planet beneath his feat.

Arthur seems to have summed this podcast up best.

ewilkerson's picture
ewilkerson
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Good point Mark.   He does

Good point Mark.

  He does not understand that we may be on our last bout of growth.  There may be a few more on the plateau, but even if we start balancing the budget in two years, which is a big leap, there is no way we can even sustain the interest.  By then I believe we could be the victums of the Bond Vigilantes or something else make us collapse like a collapse of Europe..  I just think there are too many things at play as you guys have pointed out that this can be anything but disorderly financially and socially.

Ernest

Just think if we attack Iran, as I believe we will, there goes any recovery  with $200 oil.  He has a simple formula about bringing down the debt with no understanding of the other complexities and unknowns. 

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Mark_BC
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I agree ewilkerson, there is

I agree ewilkerson, there is no way the monetary system could survive. One could argue that one of the main purposes of all the CB manipulation has been to prop up the current system well beyond when it should have died, decades ago. So now, if it was forced to face fundamentals, it would all vaporize in a heartbeat. There is no way the budget could be balanced now, not a chance. The deflation would be so severe it would quickly revert to hyperinflation and the end. Hyperinflation is the only end result now, barring a new gold standard but that would entail a violent currency devaluation of 10 X or more.

I remember debating with Peter Schiff about his recent book about economic growth in which he states that fish are "produced" by fishing nets. All's we have to do is get the government red tape out of the way to let the fishermen "produce" more fish with their nets. I had to explain many times over that fish (shrimp) are actually produced by the ocean (even George Costanza from Seinfeld knows this). Then the escape argument was presented that when we run out of fish in the ocean we'll just "culture" them instead, not understanding that in order to "culture" fish we have to feed them first, and this food ultimately has to come from the environment somewhere, whether the fish are in tanks on the land, pens in the sea, or swimming around free in the ocean. Economists just don't get it.

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RJE
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Chris,John, Matt Simmons,

Chris,John, Matt Simmons, Hirsch, Janszen, Skrobowski, The Oil Drum, Zero Hedge, etc... were the first of just the beginning  of people, and places who I started off reading when I committed myself to all things OIl and Economies (committing 4000 hours a year for about 4 years now, admittedly still way behind the curve). Chris and John are my can't misses each and every week. In saying this, John Mauldin has expressed today that he feels we are 5 or 6 years away from energy independence, and far be it for me to disagree but I wholeheartedly do. What he is saying to me is that 70% of all energy (Oil) used by cars, and the internal combustion engine, with a depletion rate world wide of 5 to 6% during a time when our President cannot even muster the will or guts to lay down an oil pipeline from Canada to the Gulf Coast, when Congress cannot pass a bill to use natural gas, the next highest BTU fuel that is portable and cheap, that can move heavy equipment, I would have to question whether he is smoking data that is wacky if not dangerous to your health. Other than that discrepancy it was a great interview. I just happen to think and believe that OIL makes the world go round, and we are in trouble because we are already 20 years behind the curve from a sustainable energy (new) source. Respectfully given...BOB

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RJE
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...forgive me but I forgot a

...forgive me but I forgot a thought. Economists always say that when something gets too high the market will adjust. Hamburger for steak, that sort of thing. Well maybe before the EPA came along. I would gladly pay under $3 bucks for a cleaner, and more environmentally friendly natural gas as replacement for gasoline if I could just convert my carburetor in my truck to use natural gas (I think it's illegal and I'm sure the warranty would be voided). A couple thousand dollar investment that would pay itself off in no time. But I can't. Congress and the President won't let me so I'm stuck using a fuel source I want to conserve, and use a fuel source that is cheaper. Because of their decision the economy loses out on what some claim would be hundreds of thousands of jobs. Additionally, natural gas costs would naturally rise, thus making the solar and wind more competitive on a cost basis providing us with more energy options, and more jobs! This is MADNESS folks, it is.

Arthur, you are correct. Without Oil, as it depletes, EVERYTHING depletes. That simple.

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Estatesavr
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thoughts

 every time I read John Mauldin I am struck by the following thoughts:

  1. he is bright
  2. he references work with mega wealthy funds or similar
  3. he likes to mention how much he travels
  4. he, too frequently imo, 'drops' names

I continue to read what he writes because it is another piece of the puzzle  BUT #'s 2 -4 do distract me from the content

were I able to give him my two cents of advice to him I'd counsel 'let the information speak for itself'

 

ewilkerson's picture
ewilkerson
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Mark is right, The only

Mark is right,

The only realistic outcome is a large devaluation of 10X or more.  We are already slowly doing it, but this will be insufficient.  Our government, unfortunately knows this.  I have pointed this out several times with little interest, but in the last Military Budget some big Unconstitutional changes were made.  Here is a quote from an article:

With the National Defense Authorization Act they repealed the 1878 Posse Comitatus Act, which used to prevent the military from taking over police duties and suspended Habious Corpus .
They could take anybody out there that disagrees with the government, call them a ‘belligerent of the state’ and the military could come and take them away with no charges.  No judge, no jury, no trial..

Now, I'm not saying we're going to a police state, but when you take 90% of people's money, they get pissed at their government.  In order to accomplish this there will have to be a bank holiday, so the military will be there to keep order.  I would expect we would go back to the gold standard.  The President has the power in times of emergency to confiscate gold or other things.  They won't go after our small stashes, but there are tons in the NY Fed from other countries.  Large private gold stshes could be taken, too.

There will be unrest for a while because of unemployment, hunger, and crime.  Things could happen very fast.  Europe will probably collapse, then Japan, China, and on to us.  What is a gigantic military for except to maintain power.

We'll try to slow it by bombing Iran to keep them on the Petrodollar and as many others, but our reserve currency status is slipping away and those dollars have to go somewhere and that is home.  Hyperinflation!

There really are so many things wrong in the world, so many things could cause it.  The one thing I know is that the govnment is preparing for the endgame. It will survive.

Ernest

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Looking in the wrong places to find solution.

I can't remember anymore the precise place in Shakespeare's Henry V, nor the context within which the declaration was made, when Falstaff declares that "First, we will kill all the lawyers!" But, with due respect to Falstaff and apologies to Shakespeare, I say "Kill all the globalists!."

True, our profligate government deficit-spending ways pre-dated NAFTA, WTO, and all similar "Free Trade" agreements by at least 2 decades. However, the the process of destruction of our middle class and the degradation of our working class quickened to a sickening pace just after the passage of the WTO Treaty in 1995.

The "hard decision", that would bring with it the most gain and the least pain, should be the one that forces global business entities to produce and develop the products and services being consumed in America, by employing people living  inside America, and to do the same in Europe as well. If there was a 50% tariff applied to everything imported into the United States (Europe), there would be plenty of margin available for our private sector to hire, train, and reward people living in America to produce and consume what was made in America.

Banks and Blue Chip corporations, currently choking on cash, would have productive ways to loan/invest their money in plants, equipment, and distribution networks, in order to offset the offshore resources that would have become prohibitively expensive. Further, they could do so, knowing that no competitor could undercut them by relying on foreign suppliers.

The country could grow out of its debt crisis this way. 30 million or more people would have to be brought back into our workforce. The payroll tax collections needed to sustain social security and medicare would increase; and the needs for Food Stamps, unemployment compensation, and other forms of social relief would decrease.

RJE's picture
RJE
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Globalization is DEAD in the

Globalization is DEAD in the very near future. OIL w/depletion will see to that. We won't need tariffs. I cannot recall where I read this but it was back before the crash of 2008, but it cost more in bunker fuel for us to ship coal to China than the cargo on board was worth. That is a brolen business model, and IS Peak Oil.

Damnthematrix's picture
Damnthematrix
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Looking in the wrong places to find solution.
agbrina wrote:

The country could grow out of its debt crisis this way. 30 million or more people would have to be brought back into our workforce. The payroll tax collections needed to sustain social security and medicare would increase; and the needs for Food Stamps, unemployment compensation, and other forms of social relief would decrease.

Hi agbrina, welcome to the fray......

Trouble is, growth is not only undesirable, it won't happen in an energy crisis. We need to change the way we do EVERYTHING. First, I would cancel the debts. They are totally unrepayable, we can't even keep up with the interest repayments!

The whole "jobs jobs jobs" mantra is finished.... "Working for wages" is unsustainable, and one day soon, it will start disappearing. We must go back to the simpler way we knew 100 years ago, with the great advantage that we know a whole lot more about all sorts of things like hygiene and alternative energy. But growth is finished, we need to think outside the square.

We must live more simply so we may simply live.  Ted Trainer.

Mike

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I'm with Damnthematrix

The answers we seek are necessarily small and local.  ... Don Studinski ... been saying it for years now.

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Great discussion

What a great discussion! If a bunch of "normal" people are enlightened/self-educated enough to go toe-to-toe with Mauldin (pointing out blind spots, seeing what he's missing) there may yet be hope (at least for some of the population). Don't you just love being in the CM community?! However, I do agree with those of you who have said it or implied it here: we aren't going to get on with any solutions wholeheartedly until most of what we're working with now is shattered into a billion little pieces.  That's just human nature. So, it seems we are forced to look forward to total chaos or mere chaos (a nice distinction Mauldin introduced) as a necessary step toward a new day. The silver lining of the coming collapse is that it will be the sign that we are moving toward the new day. 

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I "heart" Mauldin. He's a

I "heart" Mauldin. He's a optimist by nature, an open-minded man looking for potential solutions rather than who to blame. Read his stuff for years. He's a part of the puzzle. So is CM, and the community here.  So are very many other sources.

I'm happy that Dr. Chris brought John Mauldin's insights to us. Sure wish he'd talk a little more about resource depletion, but I think he is a great commmunicator and an important voice.

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Good discussion guys...Ernest

Good discussion guys...Ernest

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robert essian wrote: John
robert essian wrote:

John Mauldin has expressed today that he feels we are 5 or 6 years away from energy independence, and far be it for me to disagree but I wholeheartedly do.

Mauldin is right.  The US will become energy independent.  But not in the way he thinks.  Independence will be achieved by a substantial drop in our standard of living. 

Nate

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phew!

Glad I waited for the smarter folks here to say better, what I was thinking.  How may economists and economic commentators are familiar with exponential growth?  Back to "normal" in 6-7 years?  I wish I was comfortable preparing for, or at least wishing for, that.  Admitting I'm probably not the sharpest tool in the shed on this stuff, It seems that JM might be on a slightly different track than CM (not that there's anything wrong with that...)  Aloha, Steve.

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ewilkerson
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I agree with everyone about

I agree with everyone about growth.  Just as an educated guess we would need $60-$80 oil max to get the economy growing fast  enough and have enough left over wealth to grow our way out of this under present circumstances..  He seems to have no understanding that finite (expensive) inputs decrease the extra wealth left to live better or pay down debt when needed,  I'm sure he is quite well versed in the old paradigm, but we have entered a new set of equations and rules.  We can cut expenses and programs to work in that direction, but there are other realities..

I said it before, too, but he seeems to have no understanding of our current political situation.  Those guys would rather shoot each other rather than work together, and lets not forget the pledge the Republicans signed not to raise revenues.  Without that option, there is NO deal.  We don't have the time despite his opinion.  Political realities are tough.

The train is going too fast and is too close to the cliff to stop.  Too many people want to live the way we always have.

Ernest

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John misses the most important lubricant to our economy...

Safewrite, I agree John is a great read every week. I have a question though, and is meant as a thought process and NOT critisism. I have looked for him to write about Oil and its perilous future, and never a word until this podcast. Mr. Mauldin has had the ear of some very powerful people. He was sent for to council many powerful senators, congressmen, and such in Washington about the economy and End Game. This happened I think when we were debating the last budget request that our leaders completely punted on. If John doesn't believe in Peak Oil (he does state cheap oil is finsihed to his credit), and he honestly feels that we can be oil independent in 4 to 5 years then his basic message is false, misleading, and counter productive. I wonder if he ever read the Hirsch (The Impending World Energy Mess) report. This book is a MUST read, a MUST. It would be 4 years just to set up a plan. His missed the boat in the podcast with Chris concerning the Peak Oil issue, he really did. This for me now makes his economics suspect. Sort of like knowing how to tear down and rebuild an engine (economy) and then have no gasoline (growth). BOB

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Debt leads to growth which is exponential and unsustainable

 First up, I agree with Estatesavr ‘s assessment of John Mauldin . The conclusion I draw is that he mixes too much with the elite and his views are tempered by that relationship. If we can point the finger at anyone, it surely is the financial and political elite that have brought the world to the straits we are in today.

I don’t want to get too carried away with finger-pointing though. Certainly the elite smoothed the path and encouraged the growth in debt based acquisitions (first in the dot.com boom, then housing but also accompanied by an extraordinary retail binge). They encouraged this mania by fostering the idea that such acquisitions were investments.  People are not generally so stupid – that is why this behavior could be genuinely called a mania or a madness. In the final analysis we  really have only ourselves to blame.

I don’t think JM has added anything useful to the conversation – in fact, he appeared to me to somewhat lost for words. The idea that the US will work its way through this in 5 or 6 years smacks of wishful thinking. The Great Depression took the best part of two decades and a world war before the world could fairly be described as on an upward path again. The earlier financial debacle, the South Sea Bubble, which I suspect has more affinity to this crisis took around 60 years before things began to pick up speed again.

I suspect that the destruction of wealth by deflation over the next 3-4 years will be so great that it will be years before there will be much enthusiasm for the financial markets again. I think Arthur and Mark_BC are much closer to the truth in their consideration of energy affordability and the limit to growth. I think there will have to be a far deeper debate about debt because it is debt that creates the need for growth. If you borrowed money and just paid back the principle the need for growth much beyond replacement would not exist. It is the interest requirement that creates the necessity to keep growing the money supply. It is a vicious circle which inevitably becomes accelerated by greed and delusions of new economic paradigms or the  ”permanently high plateau” until it ends in a bust. This has been going on throughout history and the curve has been exponential. Exponential is not a concept that many people seem to understand, despite, ironically enough, many financial advisors preaching the wonders of compounding. It is not sustainable without catastrophic setbacks.

The wealth destruction will, I believe, be so intense that there will be no chance of hyperinflation.  

I really do not see how hyperinflation could happen anyway because most people are using electronic money and such transactions could be very quickly shut down. This so called wealth will just disappear in massive bankruptcies thus reducing the stock of electronic dollars. The US has been at essentially zero interest rate for 6 years. If hyperinflation was the threat that so many people believe it to be, then gold and silver would already be out of the ball park. It has not happened. Precious metals have been firm because at such low rates gold certainly represents as good a way as any of storing a surplus. The trouble is that there is not much real surplus because there is still a ferocious amount of debt festering on balance sheets. The animal spirits have waned, the speculative fever is over and the retail rampage is history. The one very sensible point that John Mauldin made was that he was advising funds to aim for 0% gain which is a cute way of saying that if they can avoid loss, then they will be doing very well. Of course, very few of them will avoid loss unless they are able to go 100% into cash. The funds are a herd and like all herds they spend most of their time looking to see what the others in the herd are doing so one way or another they will be trying to not be outdone by the others. They don’t have the culture or the constitution to aim for zero. 

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RJE
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I can't let this go...

John lives in Texas, and perhaps he's biased, maybe not. At the turn of the last century you could stick a straw into the ground, spend $1 dollar and make $100. Today you stick a straw in the ground, angle it, send it a mile or so, frac the rock, and draw your oil. Costs, for every $1 dollar spent you get $7 to $10 bucks. 20 years from now, hell, 10 years from now you get $4 to $5 bucks profit. This is the area where you better be darn certain you want to stick those straws in the ground because any dry hole could bankrupt the company. Who, what, financier will want to take that risk? Not mentioned much is the infrastructure, laid down 50/60  (or more) years ago in open fields that have passed their useful life. They will need to be replaced. Enter the EPA! These costs are going to be monumental.

A simpler life is where we are headed for sure but with that the transition will be challenging. Lots of social chaos, and then hopefully some balance. I see the future, and personally I have lived in that futuristic backwardization. What I don't see, and have to prepare for are the ones that want what I have meagerly set aside because they are unprepared. This means violence folks ,it always has. History is filled with examples of tribes attacking tribes for their winter stores. Then oil came along and we built a complex society that is really going to be challenged. I get the economics now where's the energy?!

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Using natural gas for auto fuel

 Robert E wrote: 

"if I could just convert my carburetor in my truck to use natural gas (I think it's illegal and I'm sure the warranty would be voided). A couple thousand dollar investment that would pay itself off in no time. But I can't. Congress and the President won't let me so I'm stuck using a fuel source I want to conserve"

It is legal to convert to propane or gas, so buy a kit and convert - not all our problems can be blamed on Congress - just not quite that easy on our newer vehicles with all the electronics and pollution control systems. And yes the warranty is probably void it you were to convert. If we are going to  do conversions on a large scale, it needs to start with the car manufacturers so that the design will really work. Remember that the fuel delivery system is not in place, especially with natural gas which has to be kept under high pressure (propane is a low pressure system), so that means a national decision to make the change. Out here in Arizona the State had a (failed) incentive program to install propane or natural gas system on vehicles. The State paid most of the cost of the modifications and of course the fuel cost was far less than gasoline so economically it was great. Quite a few gas stations installed propane refuelling, but we had to find one and they had to have a person dedicated to doing the refuelling for you rather than doing it yourself .

I installed a propane system on my pickup and it worked well at first, however the design (State approved) was faulty and it blew up - even buckled the hood and broke a number of manifold pieces. Needless to say I quit using propane aftet that experience, As a proof of concept at a cost of 1/2 a billion State dollars, we did prove that it could work if properly planned. One side effect was that the price of propane increased to the point where gasoline was about the same as propane - so the unfettered market works, however not always as hoped for.

Jim

PS - IMHO I agree that John missed the boat on peak oil

RJE's picture
RJE
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A good article with a video from Diane Foss...

...I like this Lady, and if you don't know her please listen to the video at the end of the article. She does a nice job.

http://theautomaticearth.blogspot.com/

 

SagerXX's picture
SagerXX
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Hard to believe any serious thinker...

...out there can dismiss Peak Oil, but he does (Mauldin).  At least he makes a nod to Peak Cheap Oil...

Even so, IMO his most valuable thoughts in this podcast were on the bond bubble/government financing (debt) crisis.  Outside of those boundaries, he and I part ways (although I do get his e-newsletter and I read it each week).

As other folks have written:  Mauldin's just a piece of the information & data puzzle.  Even if a given data input is noisy or conflicts with my beliefs/convictions, I never know when it's going to deliver an awesome nugget of novel information.  So I keep my mind (and eyes & ears) open.

Thanks Dr. Chris for having Mauldin on.

Viva -- Sager

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ewilkerson
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I think people have made

I think people have made some very good points about many things Mauldin misses.  He did spend most of the podcast, I believe, talking about getting the debt under control and growing out of it.  He did not, however, make any mention of what would happen if interest rates rose to a reasonable level of say 5%-6%, and at this point I'm not so sure the market would allow that low a rate.  The interest on $15.5 Trillion would be around $775 Billion.  I know the Fed can print money and all that, but there comes a time when markets seek equilibrium.  That is just a law of nature, there is always a breaking point.
.                              

Ernest                                           

RJE's picture
RJE
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...I am aware that

...I am aware that conversions can take place but I am not certain that I want to go through the hassles with the EPA.

http://certificationservicesinternational.com/myths-vs-facts/

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Jim H
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Sager...

As one of our most sage members, you point out an important facet of truth seeking;

"Mauldin's just a piece of the information & data puzzle.  Even if a given data input is noisy or conflicts with my beliefs/convictions, I never know when it's going to deliver an awesome nugget of novel information.  So I keep my mind (and eyes & ears) open."

Several times in quoting sources on this site, people have come back at me with quips like, "I stopped reading when you linked to Kingworldnews" or such... as if a given source, or singular blogger, becomes useless once they take a stand against some part of the belief system or worldview that the responder espouses.  That is silly, and terribly limiting.  I also get the Mauldin newsletter, and I have his book... but I have to say I don't get too many nuggets from him anymore myself.  I will read many other regular sources before I read his stuff... but I don't write him off for sure.  

Most here know that I am a strong advocate of PM's, and hence I do often refer to Kingworldnews articles, and Dave from Denver, and Harvey Organ, and so forth.  But I also read (and love) Denninger... and he writes off Gold as being useless... in his worldview the Gov't will just tax the hell out of it's sale, and take it from you that way... and I can't say for sure that won't happen.. so I have Silver too, and friends with sailboats that know their way to other countries that might not have punative taxes.. etc.  I also read Theautomaticearth regularly, and they also assume Gold will be of little utility in what in their view will be a deflationary collapse.  Just as an example, here was Illargi's latest comment from just last week;

"Ilargi: Ironically and unfortunately, the economic growth faith delusion is too strong to make people, even if they acknowledge that harder times lie ahead, understand that they need to focus some place other than how much their gold is worth today, or their pension. That things other than monetary items will be much more important to their survival and well-being.

That land and community and practical skills will in the future trump all the things they've ever seen as valuable. And, to be honest, how can you be expected to change your myopic points of view when everyone around you holds on to them in the exact same way that you do? You look around, and everything seems alright, nothing a spoonful of austerity and hard work can't cure. "

source:  http://theautomaticearth.blogspot.com/2012/01/january-25-2012-occupy-your-own-space.html 

That is just a dumb line...  I am not even sure what he is trying to express... I for sure have no economic growth delusions, and yet I do very much track the price of Gold, as viewed through an informed filter of the level of manipulation happening, as one true measure of how hated fiat currencies are becoming.  And yeah Illargi.. I see the need for all the other prep's you mention.  

My point is, almost ever blogger or writer has what we would percieve as blind spots, or even just plain wrong thinking.  It does not mean that they don't have other thoughts that might be quite illuminating.   

 

  

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To underscore Jim's point

In pursuing interview guests, we don't screen for 100% likemindedness with our views. Since we embrace an empirical approach, where we may pivot our position if compelling new data or logic enteres the picture, we seek minds that very often see the world differently.

Looking at the names we're calling on to be guests in 2012, I can guarantee there will be future guests who fundamentally disagree with the conculsions of the Crash Course framework. But if they can provide us with an intelligently presented counter-argument or useful new perspective, we're the better off for it.

I'm really pleased with the conscientious and open-minded discussion this interview is generating. This is exactly the kind of thinking-exchange we want this site to foster.

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ewilkerson
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T Boone Pickins has been

T Boone Pickins has been working on putting the LNG gas system around the country.  Look at Clean Energy Fuels and Westport Engineering.  He has made great progress.

SagerXX's picture
SagerXX
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Jim H wrote: As one of our
Jim H wrote:

As one of our most sage members, you point out an important facet of truth seeking;

Aw shucks, man.  You say the nicest things.  C'mon, let's HUG IT OUT!!!  

I think of it in terms of my mind having an immune system:  if I don't expose it to perspectives that differ from my own, it'll get weak and soft.  And lordy are we going to need superior discernment skills when things start getting hairy.  Imagine a 3-5 year period where it's like Fall of 2008 ALL THE TIME.  Zoinks!

Viva -- Sager

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RJE
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Jim H.. points are valid and true...

...it is sort of like keep your friends close and enemies closer. Jim H. is a bright mind, and argues his points as it fits his professional/personal structure. He has conviction, and is always moving forward. I gravitate towards Men like that. I find the value of everyone if  their content adds to my knowledge base. Clarity is what I am seeking, and with this interview with Mr. Mauldin he adds to my lack of economics understanding with each article he prints. However, if he had all the answers then hell he would actually understand Peak Oil ,which of course he DOES NOT!. Personally it is wise to take the pain of reading the alternate point of view too, because the alternate point of view DOES have some truths behind their words. Yin-Yang with a slight bias as more information is gathered. Plus it's fun argueing or yelling at the material you are reading (hopefully when no one is around). 

One final thought (haha), Mauldin says cheap energy is gone, OK, true, but Oil at $120 a barrel is an economy breaker, it really is. So he says he don't really believe in Peak Oil!? What!!!? He understands all things economics, and that bit of alpha uno news/research doesn't factor into his numbers? Really! Debt cannot be serviced without growth we all know this, so we wash, rinse, and repeat this crap every few years then if Peak Oil isn't understood (good for us and our investmets, and ongoing preparations). The middle class and below just bankrupts their debt away, live in their homes for three years (free) while they await foreclosure, and collect the windfall from not paying a mortgage, interests, taxes, homeowner insurance, Then buy a crashed housing market home on the cheap, with cash they stashed away the last 3 years from the bank they were just foreclosed on (crazy stuff). Everyone can play the game when moral hazards, and the rule of law have been consciously side aside because the elite actually invent new laws as they move along. Rip off Billion dollar segregated accounts, and then throws a $35,000 a plate dinner for the Prez! That evening!!! Then!!!!, is out looking to buy a home outside the country!!! Honest, you can't make this stuff up.

Adam, you folks are doing a nice job then because it gets no better than Chris and Mish or Martinson and Mauldin (I jumped out at my screen when I seen Chris was interviewing John). I would love for Mauldin to join in here, and get the grass roots concerns that are equally as valid as his chums like Rosenberg. My beloved Tigers picked up Fielder. Yeah baby!!!  Peace

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its the debt silly

Thanks John - the problem was borrowing money to deficit spend in the first place.

Instead of borrowing to pay social security and health - the govt simply needs to credit the bank accounts of those entitled to receive a payment.  It could also pay all the govt workers including defense personnel in this way.

Don't need to borrow to do this, don't need to print money either (there's bloody heaps of stuff in circulation).

But the accounting entries are needed shout the accountants!!!

Rubbish, don't listen to the accountants, everything's black and white to them (and the ends justify the means, but I digress).

The USA is a sovereign nation with its own fiat currency.

Stop borrowing, just spend.

 

Over time of course, the US$ will depreciate, but you're doing that anyway on current policies.

Wake up USA, or it will be too late.

 

Where were you all when this was happening???

Doug's picture
Doug
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Quote: Where were you all
Quote:

Where were you all when this was happening???

First, welcome to CM.  I'm sure you'll benefit from the collection of talent and brains on this site.

In answer to your question, right here.

http://www.peakprosperity.com/crashcourse/chapter-7-money-creation

Take the whole Crash Course.  It does an excellent job explaining how we got here and what we can do about it.

Doug

Doug's picture
Doug
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mineral resource abundance?

http://www.businessweek.com/magazine/everything-you-know-about-peak-oil-is-wrong-01262012.html?chan=magazine+channel_top+stories

Quote:

Start with oil. In 1971, the Limits to Growth team forecast that the world’s supply would run out 10 years from today. And yet according to renowned oil analyst Daniel Yergin, technology advances and new discoveries have allowed oil reserves worldwide to keep growing. For every barrel of oil produced in the world from 2007 to 2009, 1.6 barrels of new reserves were added. The World Energy Council reports that global proven recoverable reserves of natural gas liquids and crude oil amounted to 1.2 trillion barrels in 2010. That’s enough to last another 38 years at current usage. Add in shale oil, and that’s an additional 4.8 trillion barrels, or a century and a half’s worth of supply at present usage rates. Tar sands, including some huge Canadian deposits, add perhaps 6 trillion barrels more.

We’re awash in more than oil. One British study from the 1930s predicted an acute global shortage of copper “within a generation.” Not so much. The U.S. Geological Survey estimates global land-based copper resources to be 3 billion tons or more—the equivalent of 185,000 years at current production. That’s almost double the estimate of resources from 11 years ago, which means the number may have further to climb. And when we do finally run out of land-based supplies, there are still the undersea sources to use up.

What are we to believe?  Does Yergin fiddle the numbers or misunderstand the nature of resource depletion?  Or, are the numbers just another manifestation of hopium?  Or, is Mauldin correct that we are just running out of cheap oil?  If the latter, how expensive will it get?  At what point will the cost of oil drag the world economy into a pit that is inescapable?

We've all seen the peak oil charts and they paint a gloomy picture.  Has Yergin and his ilk found something to dispute what I have assumed are pretty objective data?  It would be interesting to get Yergin or a representative of his perspective on CM's blog to explore what his assumptions are.

Doug

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timeandtide
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Peak Oil

 John Mauldin commented that he was a believer in peak, cheap oil. I think he meant that there is a point at which other energy sources will become better alternatives to oil. Other than aircraft, I can't hink of any machine that is dependent on liquid fuel. Everything else can run on gas or electricity generated by whatever means. The stone age did not end because they ran out of stones - bronze replaced stone implements. If motor vehicles move en masse to gas or electricity over the next decade or so then the demand for oil based hydrocarbons will surely decline. I think we will see an oil price decline to the $20-30 price region within the next few years from an ElliottWave chart analysis point of view. I don't think there is much utility in the peak anything concept. I think there is far more value in looking at the energy in / energy out equation done in an honest accounting fashion so that all externalities are accounted for as well.

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Doug, Mauldin is right to a

Doug,

Mauldin is right to a degree.  We are running out of cheap oil, but that, also, means we are running out of easy to get to oil.  Aren't they going to have to drill down around seven miles in Brazil?  It's back to EROEI.  We are loosing around 3m b/d per year to depletion while I have read with best efforts, and a lot of money, oil sands may finally get to 3m b/d in at least a decade.  There are other projects coming online but will take time  that we don't have and will be low EROEI projects.  I loved it when Mauldin, basically, said, "Drill baby drill."  He is of that mindset.  They just don't understand EROEI and the other aspects of drilling..

From the things I've read about shale oil those wells deplete very quickly and you have to keep drilling at a rapid rate.  Back to EROEI.  The Alaska pipeline will have to be shut down soon becasue they don't have enough oil going through it to pump.  I'm not sure of the timing, but it's all part of the big complicated picture of depletion.

How expensive oil can an economy run on and grow?  I don't think above $100 to maybe $150 if you conserve from what I have observed so far.

Cheers,

Ernest

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Reply to ewilkerson

 Right on Ernest, and after EROEI comes Global Warming. None of the financial writers talk about it but the scientific reports steadily worsen. To get the full picture read  "Limits to Growth, The Thirty Year Update" by Meadows,Randers, and Meadows.

Best, Walt

RJE's picture
RJE
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Posts: 1369
TimeandTide...

...we have to do the math. OK, the US has 250 million internal combustion engines on the road today. We sell maybe 11 million cars a year. To convert the fleet then, that incidentally uses 70% of all the oil we refine we would first have to only sell electric cars (try getting an uninformed public to buy into this idea, Additionally no infrastructure yet after you leave home). That means it would take roughly thirteen years just to cut by 50% the oil usage. Plus electric cars that are not scaled up costs more to purchase. In addition, you have a car/truck that may already be paid off. So adding a new payment to an already strained budget gives pause to what you would like to do, to what makes economic sense. In addition,  building out a new car takes a tremendous amount of oil from shipping raw materials, making parts, tires, etc...The car you own requires nothing more than to just fill it up, A new car expends a great deal in barrels of oil to build and ship. To finish this, I would argue that Oil in 13 years would be so much higher than today. Maybe 20% (plus) because of the depletion rate that is estimated at 5 to 7%. I just don't think we get there. Prudently, we should look at mass transit, and leave the cost of Oil to the very rich because their the ones who will be able afford it. I really could go much further with this but I hope you have some perspective on the complexity of this issue with this example. It's daunting, it really is.  Two books I recommend, "The Impending World Energy Mess" by Hirsch, and "Why Your World is about to get A Whole Lot Smaller", by Jeff Rubin. Anything ever written by Matt Simmons is always a good read. Then re-visit the crash course. Respectfully Bob 

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Like there's no tomorrow

I agree with you completely and the comments following your post.  I have been receiving John Mauldin's newsletter for a couple of years now and I find he has an interesting take on the state of affairs from an economic perspective, but he completely misses the physical world as someone else mentioned in these posts.  Economists and analysts rarely put all the pieces together. 

SagerXX's picture
SagerXX
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jfitchett wrote: Economists
jfitchett wrote:

Economists and analysts rarely put all the pieces together. 

Which is one of the reasons the CC is so remarkable.

bitterbaldguy's picture
bitterbaldguy
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Roger that Natufian

US energy independence in 4-5 years?  Say wha?  Right...punching more holes in the ground...right....

He's as right as right all right!  I like Newt?  WTF does that have to do with this topic?  Oh right...rights are in bed with big oil...i forogt.  RIght...

This guy has a bad case of normalcy bias and has no clue about macro as it applies to the other two E's.  Interestingly, there are so many people that have great insights into the Economy but either haven't a clue or haven't connected the dots with the other E's which BTW, completely dwarf the economy in terms of impact on modern civ as we now know it.

Dragline's picture
Dragline
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Posts: 54
IRVING Fisher

I find it disturbing that Mauldin referred to "Richard" Fisher in the podcast, when he spent so much time discussing the real IRVING Fisher in his book.  It makes me wonder if its his co-author that is the real thinker and he has not read Fisher or Minsky or Keen.

Its more disturbing that this site would "correct" his faux pas by publishing an inaccurate transcript with the name "Irving" superimposed instead of Mauldin's obvious "Richard" on the recording.

I know Mauldin is a big marketer and identifies himself more as an "entrepeneur" than a thinker.  But let's call a spade a spade if he can't get his names right.

Where do you guys (the purveyors of this website) stand on that?  Are you more entrepreneurs and marketers or  thinkers?  I suggest integrity is the best policy and "fixing" oral statements by rewriting transcripts is the exact opposite of living in truth.  

That's what Congress does, for goodness sake!

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
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Posts: 2737
Clarity

We made the fix because it was obvious from the context that he intended to refer to "Irving" Fisher, but made an honest verbal mistake. Our hope was that by making the fix, we would reduce confusion for those reading the transcript (it's much harder to 'fix' the audio after it's been recorded!)

Every once in a very rare while, we will make similar corrections to transcripts when we deem it will materially improve comprehension and/or reduce confusion without violating the integrity of the point the speaker is making.

If folks here have a problem with that or have a preferred treatment they'd like us to use when doing this, we're all ears.

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DianaDavenport
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Yes Ernest, I agree. It is quite scary.

We are living in Germany,and we hope to move back to the US for reasons regarding my boys' educations (we were a homeschool family before and that is a better fit for us,) and our aging parents.  However, I find endless irony in the fact that I am living in Germany and am fearful to be in the US because of the police state it has become - and is becoming more so.  I mean really, one could just call it a military dictatorship at this point.  Isn't that what it is when the "leadership" can use the military against the people?  Things aren't great anywhere, but Germany is still the strongest western economy, and I feel like we'll be stepping onto a sinking ship.  The evidence is so overwhelming now, that you pretty much have to believe in David Icke's shape-shifting lizard people for anyone to call you a conspiracy theorist *wacko* these days.  I had heard about the FEMA detention camps many years ago.  Infact, I was beginning to think it was a bunch of hogwash because nothing ever came of it.  But now, in just a few short months we've made it illegal to assassinate US citizens and to "disappear" them?  You are right, things are happening really fast now.

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