Endgame: The End of the Debt Supercycle and How It Changes Everything [Hardcover]

John Mauldin (Author), Jonathan Tepper (Author)

Book Description

Publication Date: March 8, 2011

Greece isn't the only country drowning in debt. The Debt Supercycle—when the easily managed, decades-long growth of debt results in a massive sovereign debt and credit crisis—is affecting developed countries around the world, including the United States. For these countries, there are only two options, and neither is good—restructure the debt or reduce it through austerity measures. Endgame details the Debt Supercycle and the sovereign debt crisis, and shows that, while there are no good choices, the worst choice would be to ignore the deleveraging resulting from the credit crisis. The book:

• Reveals why the world economy is in for an extended period of sluggish growth, high unemployment, and volatile markets punctuated by persistent recessions
• Reviews global markets, trends in population, government policies, and currencies

Around the world, countries are faced with difficult choices. Endgame provides a framework for making those choices.

Editorial Reviews

Amazon.com Review

Q&A with Authors John Mauldin and Jonathan Tepper

Author John Mauldin

What is the debt supercycle?
Over a period of about sixty years, debt levels grew faster than incomes. This increase in debt became particularly pronounced in the 1980s, 90s and finally went parabolic after the Federal Reserve lowered interest rates to 1% after the Nasdaq crash. The increase in debt was not just a US phenomenon. As interest rates fell structurally with the fall in inflation from 1982 onwards, people took on more debt because it became more manageable. However, by 2008 the burden of debt became too much to bear and the debt supercycle came to an end. People started deleveraging and banks started collapsing due to low levels of capital and large losses from loans people couldn't pay back.

How does the sovereign debt crisis play into this?
The rapid contraction in debt levels due to default and deleveraging lead to a fall in economic activity as people started saving and cutting spending. Governments immediately stepped in and backed bank debt with explicit guarantees. Governments also started borrowing and spending to transfer money to the private sector, for example via unemployment insurance. So in a very real sense, private borrowing was replaced with public borrowing. Debt was added onto more debt. Rather than free itself of debt, the system now has more debt. The sovereign debt crisis is the recognition that most of this debt will not be paid back, and governments are making promises to pay debt and other obligations, for example general spending and pensions, that they simply lack the ability to fulfill.

What is the impact of the end of the debt supercycle?

Author Jonathan Tepper

The end of the debt supercycle and the beginning of the sovereign debt crisis present problems and challenges for investors and governments. Governments will need to either 1) inflate, 2) default or 3) devalue, which is similar to inflate. That is the way governments have historically dealt with too much debt. Some countries will experience deflation and others inflation, depending on what choices governments make. Currently governments have only bad and worse choices. Let's hope they can choose wisely.

What do you predict for the next ten years?
Central banks globally have shown a predisposition to print money to solve problems. We forsee rising inflation in many parts of the world, reductions in real income as people lose purchasing power due to higher food and fuel prices and more macroeconomic volatility. Some countries that do not control their own money supply or are running pegs may experience deflation as they are forced to delever and cannot increase the money supply to counteract the weight of deleveraging.

You cite the events in Greece as an example of a country continuing to run massive deficits. Is there an example of a country making a better choice?
The UK is making some of the right steps to control spending, but even the UK could be more draconian. In nominal and real terms, government spending in aggregate will not be cut in the UK. Also, Iceland has made positive steps by defaulting on its debt effectively. Default is a good way to cure too much debt.

Review

In Endgame: The End of the Debt Supercycle and How It Changes Everything, Mauldin and Tepper pull no punches and get directly the point. ...Endgame is a veritable trip around the world, as Mauldin lays out the uncomfortable choices facing nearly every major country. While Mauldin’s analysis of the American debt problem is sobering, his comments on Europe are downright frightening…Given the noise dominating the newswires, it is refreshing to find clear, coherent thinking. Our compliments to Messrs. Mauldin and Tepper on a job well done.”
—Charles Sizemore, HS Dent Research Analyst and Editor of the Sizemore Investment Letter

See all Editorial Reviews

Product Details

• Hardcover: 336 pages
• Publisher: Wiley; 1 edition (March 8, 2011)
• Language: English
• ISBN-10: 1118004574
• ISBN-13: 978-1118004579
• Product Dimensions: 6.4 x 1.1 x 9.4 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.2 out of 5 stars  See all reviews (117 customer reviews)
• Amazon Best Sellers Rank: #21,868 in Books (See Top 100 in Books)
  • #9 in Books > Business & Investing > Economics > Public Finance
  • #11 in Books > Business & Investing > Personal Finance > Credit Ratings & Repair
  • #33 in Books > Politics & Social Sciences > Politics & Government > Specific Topics > Political Economy

Most Helpful Customer Reviews

396 of 408 people found the following review helpful

5.0 out of 5 stars Endgame: Road to Perdition or Rejuvenation? March 7, 2011

By Serge J. Van Steenkiste

Format:Hardcover

John Mauldin and Jonathan Tepper clearly set the stage for how to invest and profit from what they call the "Endgame." The Endgame follows the "Debt Supercycle." The debt supercycle refers to the unsustainable rise of debt over a period of 60+ years mostly in the private sector of the developed world that culminated into the global financial crisis that erupted in 2007-08 (pp. 8; 12; 15; 25; 40; 108). The endgame points to a crisis in the public sector debt, which (will) occur when (Western) governments run into the limits of their ability to borrow money at today's low rates (p. 25).

The transition from the debt supercycle to the endgame is characterized, for the most part, by a transfer of debt, not an extinction of it, from the private sector to the public sector (pp. 24-25). Western governments and central banks have run large fiscal deficits and printed massive amounts of money to reduce the impact of the multiyear balance sheet recession in the private sector (pp. 8; 13; 24-25; 29; 58-63; 98-104; 136-141; 155; 158; 172-174; 227; 230; 252; 267-272). To their credit, Mauldin and Tepper clearly explain why deficits matter. Unfortunately, countries like the United States have mostly not run surplus and pay down debt in good times so that there is room for a policy response in bad times (pp. 54-57; 178-180; 188-196; 224; 235; 249). Unless central banks print money, the financing of large government debt runs the risk of crowding out business investment that relies on savings of consumers and businesses (pp. 53; 121-122).

Mauldin and Tepper are not surprised at all about this policy of kicking the proverbial can down the road that will result into greater systemic instability with more macroeconomic volatility and greater variability of inflation rates (pp. 29; 34-44; 73-89; 154; 240; 254; 271). Most politicians in the developed economies have a hard time to address any long-term problem because most voters prefer to opt out of a long-term gain if a short-term pain is required (pp. 3; 7; 118; 129; 182; 188; 218; 238). The authors warn public decision-makers and their respective electorate that the longer hard decisions are put off, the more pain their country, state, or city will have to ultimately endure (pp. 6; 89; 92; 100; 155-156; 219; 226; 239; 245; 253-259). Like the private sector, the public sector will be hold accountable for trying to borrow its way out of a debt crisis (pp. 41; 55-56; 100; 259).

Mauldin and Tepper recommend that:
1. Americans reduce their personal leverage and save more. Policy makers have relied on debt and income transfers to mask the fact that low-end wages have become too high under the relentless pressure of globalization;
2. The U.S. economy shift from consumption, real estate, and finance toward manufacturing to start addressing the structural decline in its civilian participation rate. Germany has been thriving because the world has been buying its goods;
3. The United States put in place more tax policies to encourage new businesses and therefore new jobs;
4. The United States restructure Medicare, Medicaid, and Social Security thoroughly. No reasonably foreseeable rate of economic growth will overcome the structural deficit associated with these three major programs. Otherwise, a substantial value added tax will be needed to cover the cost and result into even slower growth;
5. The United States, its states, and its cities revisit the total remuneration package of their respective workforce. The status quo is unsustainable;
6. The United States take a cue from Canada by giving a higher priority to legal immigrants with degrees and money for a few years;
7. The U.S. economy reduce its over-dependence on foreign oil through steep taxation on gasoline to make alternatives more competitive that they are today. The tax burden in the United States is low compared to other countries around the world;
8. The United States use some of the proceeds, of a significantly higher taxation, on gasoline to fix its infrastructure, which is badly in need of repair;
9. The United States get serious about the much-touted nuclear renaissance by approving the building of a large number of new reactors (pp. 67-69; 85-86; 88-89; 118-119; 124-125; 137; 160; 167-169; 181-214; 243-244).

Mauldin and Tepper point out that there is no way to know in advance when bondholders will suddenly lose confidence in the ability of a government to pay its debt, even if that debt is denominated in a currency that the government can print (pp. 13-14; 32; 54-55; 57; 94-98; 125-127; 186-188; 259; 263; 279-281). When countries have too much debt, they usually inflate away excessive debt. Devaluation and default on debt are the two other options available to over-indebted countries (pp. 25; 110; 122-125; 128-131; 158; 180; 200; 229). To compensate for this higher perceived risk, bondholders will press for a rise in interest rates, which will further debilitate the capacity of a country to refund its debt (pp. 55; 105; 123; 231). A program of austerity becomes a necessity to bring the debt back to acceptable levels and to reinvigorate the confidence of bondholders (pp. 12; 154). Without the precarious and fickle confidence of bondholders, the ability to roll over (large) debt, especially short-term one, or borrow new debt at affordable rates, crumbles concomitantly with the liquidity of the financial markets and the economy (pp. 94; 96; 278).

Although Mauldin and Tepper do not offer any practical investment advice, they give a non-exhaustive list of possible investments to consider if one believes in either deflation and/or inflation (pp. 284-292; 294-296). The authors believe that deflation will precede inflation (pp. 133; 295). Mauldin and Tepper have a low confidence in the ability of Western central banks, including the U.S. Federal Reserve, to appropriately transition their respective economies from a deflationary era to one of controlled inflation. Therefore, timing will be critical to capitalize on an era of increasing volatility (p. 296).

54 of 54 people found the following review helpful

3.0 out of 5 stars Good general overview of current situation June 24, 2011

By Glenn Corey

Format:Hardcover

I've been reading John Mauldin for a while now. I've read other books of his and am used to his sometimes strange style that mixes serious scholarship with very colloquial language (for example, he refers to Reinhart and Rogoff, an overview of whose book gets its own chapter, as "wicked smart") with some occasional and annoying name dropping (anybody who's anybody in economics or investing seems to be his good friend). But the important part of the book, providing an overview of the current situation and various outlooks (intermediate-, long-, and very long-term), is very good and will leave the reader with a more solid understanding of the ongoing financial crisis. It is rather pessimistic in the intermediate to long term, though very optimistic in the very long term (more than 10 years). There are also some interesting suggestions that I hadn't read anywhere else about how to take some positive steps toward mitigating the crisis, at least a little. I don't think those suggestions will be taken serious by policymakers, but they won't be able to say that creative solutions weren't available.

So why just three stars? First, I didn't think the analysis was all that new or profound. If you are coming to the subject for the first time, then you'll probably learn a lot. However, if it's a topic that you already know a lot about, then you probably won't learn all that much that's new to you. Second, and more seriously in my opinion, is what I consider an ethical breach on Mauldin's part. In the epilogue, the authors (mostly Mauldin, it seemed to me) were giving reasons why we should be optimistic in the very long term. The authors believe that the advances taking place in various areas of biotechnology will be revolutionary and make life a lot better and longer for a lot of people. He talks in general about what's going on, but in one particular case, he mentions a specific company. However, he fails to disclose that he has a personal stake in that company, and so this comes across as shameless stock promotion, and for that I deducted a star. Still, the book is worth the read.

228 of 246 people found the following review helpful

2.0 out of 5 stars Skp the Book, Sign up for his Newsletter March 28, 2011

By German

Format:Hardcover|Amazon Verified Purchase

John Mauldin has an outstanding free weekly e-newsletter. It is one of my top 3 sources for business informatin and certainly my favorite source that comes at no cost. Hence I was eagerly anticipating his book and rushed out to buy it when it became available. Unfortunately, the book was a big let down when compared to his newsletter.
Here is the positive:
1) End Game looks at both sides of the flation argument, as opposed to other books that focus on just 1 or the other.
2) Mr. Mauldin tells you what he believes will be the likely outcmes for several countries around the world. 3) The book is straightforward and easy to read.
The Negative:
1) Too much of other people's thinking. This works for his newsletter as you get a broad perspective from a variety of economists. But for a book it just makes it seem like the authors didn't do enough of their own leg work, and were in some hurry to meet a deadline.
2) The chapter on how you should invest shouldn't be called a chapter, it is 4 pages short.
3) While the authors talk both the drivers of inflation and deflation they do not dedicate much time to discussing how, why, and when one will predominate the other. The most specific they get is to say they believe for hte US we will have deflation then inflation, no degrees of, or time frames or things to look out for as to when the change may be occurring.

Overall, I'm happy I bought the book, simply because Mr. Maulding issues such an outstandng e-newsletter for free, that I feel he deservees his royalty fees from my purchase of his book.