Mauldin: proving just enough information to miss the point.

I hate to pick on John Mauldin so much because he really is a nice guy.  But when I see a pattern of always shooting behind the duck or of simply missing the point I just have to say something because people such as him with a large readership actually think they know what is going on for having read his work.  Unfortunately, Mauldin has been only partially correct for many years now and, unfortunately, the places where he has been wrong are the most important ones for the average people to know.

Years ago, he was talking about "muddle through".   This belief was that the current economic collapse would be sort of a pain in the a$$ but the world would get by.  He portrayed it as generally annoying, not life changing as it is more likely to eventually become.  That pissed me off because when faced with something that will only be annoying, who will make any real changes or course corrections?  Who will plan ahead?  Very, very few.  But if warned that a massive collapse is mathematically in the cards by someone who had the sheeple's attention, a lot more of them would probably take steps to prepare.

Today Mauldin is out with another set of shoot behind the duck observations and thoughts that he entitled Waving The White Flag.  You will have to subscribe to his email newsletter (free) to read the whole thing.  Apparently he cannot create email lists with any sellable value simply by posting his thoughts to the web, he has to have your email address to do this...  In any case, he now sees Germany to have "capitulated" to the other money printers in Euroland. 

According to Mauldin this capitulation is really the fault of that Italian bastard, Mario Draghi who has control over the Euro printing presses right now, blah blah blah.  I'm not buying it and I never have.  The real winners in the assembly of the EU were France and Germany.  Their manufacturing machines ran short of domestic customers who were willing to buy increasingly large amounts of manufactured goods.  They also ran out of credit worthy foreign customers pre-Euro to export their manufactured goods to.  This is why the EU and the Euro were born.  This and this alone.  It gave France and Germany new customers to export things to because the Euro gave the deadbeat, can't-repay-customer a new way to consume beyond his means.  It gave them credit which they could not have received without having a common currency.  It was supposed to eliminate the ability of the debtors to inflate their own currency as the primary means of dealing with overconsumption of foreign goods. The Euro was nothing more than the mechanism to drive a huge credit bubble that would mostly benefit exporters.

Now that the bubble is going bust, the deadbeats are getting most of the early pain but it will be discovered in the fullness of time that France and Germany are going to collapse as well.  After all, if their prosperity was driven by debt based exports, their collapse is assured when such export sales collapse.  Their desire to keep the Ponzi plate spinning was always self-serving even though they were politically smart enough to make it seem like they were doing God's work in extending more and more credit in order for deadbeat customers to pay off past debts.  That is a debt Ponzi and I was calling it that back in 2008 (to the rolling eyes of friends and family).  Now Mauldin has finally figured out that "Muddle Through" is really "debt Ponzi" but he still doesn't understand the structure or the magnitude of it.

The fact is that the global economy operates on debt based money.  No modern country has any commodity backed currency since the 1971 default on gold convertibility by the US.  The global money supply is based on fiat currency and on top of it rests a mountain of debt driven by fractional reserve banking.  A lot of people think themselves wealthy because they have paper assets but those debt based assets will eventually dissolve back into the nothingness that they were originally conjured from.  Madoff is the model for this.  People still thought themselves rich up until the day he admitted they were actually bankrupt.

All the focus is on Europe now as I predicted it would eventually be back when the US was taking all the original hits for its banking crisis.  At some point Japan will blow up (badly) and China will too (along with the other BRICS).  We are living in one big, global interconnected market that runs on fraudulent, debt based money.  That is a scam.  No scam ever lasted forever and no, it will not be different this time.  Math demands an eventual global collapse although nobody can predict the date or the time or even the speed of collapse.  At the top  of the Ponzi Pyramid sits the all seeing eye of the United States.  Without the ability to finance 1.5+ trillion of operating expenses every year, the US would have collapsed long ago.  The longer we use debt for this purpose, the greater the collapse will eventually be.  By "greater" I mean the larger the number of people will be negatively affected. 

You can see it already in the skyrocketing number of people on welfare, food stamps and, as Mish points out recently, fraudulent disability claims.  At some point the US will be unable to take on debt to fund these payments.  It then have to choose between massive taxation and massive inflation.  Neither of these will work and it will drive massive change in US politics and perhaps even in the structure of the country itself.  Don't forget what happened to the USSR under similar circumstances back in the early 1990s.  The USSR broke up and became Russia and a bunch of x-stahns.  Sounds ridiculous today, right?  Yeah, I know.  So did the breakup of the Eurozone back in 2008 when I suggested that it was a real possibility if not a probability.  Fast forward to today and it is looking like a certainty.