The Beginning of the End Game

Much of the developed world is in a secular bear market, with equities offering little upside potential at today’s valuations. In addition, the world’s governments have gone wild with ever-increasing taxes and spending, and government debt is at a tipping point.

Mauldin discusses the world in general—the Eurozone, Scandinavia, Canada, Australia, Japan and the US. America’s fall election will, in part, determine how the US deals with its debt issues. Failure to do so efficiently will result in the US becoming another Eurozone mess, with low growth for much of the rest of the decade.

Spain will need a major bailout, which will come with defaults on at least a portion of the debt. The default may have another name, like ‘restructuring,’ but bondholders will not get what they thought they were buying. Spain simply cannot service the debt it must take on. Italy and Belgium, too, are in trouble, and trade imbalances between northern Europe and the south are not being dealt with.

A dysfunctional banking sector is a major drag on any nation, and European companies are about twice as dependent as US companies on the banking system. ECB President Mario Draghi may have to cut the rate at which the ECB takes deposits from banks to zero, or even negative interest, to try and force banks to do something with their money.

Europe faces a choice between Disaster A (leave the euro) and Disaster B (keep the euro). Both are horrifically expensive in different ways. If Germany left the euro it would mean an appreciation of the new deutschmark and a serious hit to exports, which are 40% of the economy. Half of those exports are to Germany’s European partners. If even 5% (a low estimate) of exports were lost, it would mean a deep recession.

To read John Mauldin article: The Beginning of the End Game

Related articles

• ECB’s Noyer Calls For Quick Move To Eurozone Banking Union

  ---

• Could debt relief ease Euro woes?

  ---

• How does the eurozone crisis affect UK markets?

  ---

• SOROS: Here’s How You End The Euro Crisis

  ---

• The Eurozone Debt Crisis – It’s Now ABOUT Germany NOT UP TO Germany!

  ---

Tagged as: Bank, ECB, European Central Bank, Eurozone, Germany, Japan, Scandinavia