Endgame: The End of the Debt SuperCycle and How It Changes Everything

In fact, for a long time, individual banks issued notes promising the holder to exchange the notes for gold. The idea that a currency should exactly equal national territory is really one that came about very late in history.

Now the United Kingdom is on the hook for some of the largest banking institutions in the world. (RBS’s balance sheet alone when it was nationalized was bigger than the United Kingdom’s GDP.) Indeed, the banking sector in the United Kingdom is one of the world’s largest: Assets of U.K. banks are more than five times the country’s GDP. In the United

That being said, at the bottom of the next U.S. recession, we think emerging market countries could see their economies and stock markets finally decouple from the United States, and at that point, they could become the trade of the decade. We suggest that investors use the time to find specific stocks and not just country ETFs, or find someone who

One last thought: Let’s assume that we find the political will to begin the process of creating some version of the glide path option, which we admit is not easy. That means the most important election in this whole process was not the one last November, nor will it be the one in 2012. Rather, it will be the one in 2014.

As part of its QE program, the Bank of England has so far purchased £200 billion ($320 billion) of U.K. sovereign debt (known as gilts). It may yet buy more. The Bank of England now owns almost a third of all outstanding gilts, as Figure 13.4 shows. This dwarfs the QE programs in the United States or Japan.

In the reflation trade, a few characteristics drive outperformance in emerging markets: Generous liquidity, that is, rapid monetary expansion Positive demographics Declining real interest rates Underleveraged consumer Banking sector with low loans-to-GDP ratio The main countries that satisfy these requirements are Turkey, Malaysia, India, Indonesia

If Congress and the president decided to lay out a real (and credible) plan to reduce the deficit over time, say five or six years, to where it was less than nominal GDP, the bond market would (we think) behave. Reducing deficits by $150 billion a year through a combination of cuts in growth and spending would get us there in five years.

For more in-depth information on the Spanish problem and the problems of other peripheral countries, you can go to www.johnmauldin.com/PIGS and see research from Jonathan Tepper of Variant Perception and other related material. Just type in your e-mail address as your name and Endgame as the password.

Australia is a house of cards. We are confident the bubble will burst and that it will be spectacular, but we do not know what will provide the spark. This brings us back to our fingers of instability metaphor we introduced in Chapter 2: We know it takes only one grain of sand to trigger the avalanche; we just don’t know which one.