I'm a science-and-engineering guy. I can handle math and statistics well enough, but I am certainly not very well-versed in economics. However, like anyone else who's paying attention, I can see that our economy is in serious trouble and that we've just been forwarding the bill on to the next generation for quite a while now.Endgame
is not a macroeconomics textbook, but the first half of the book makes sure the reader is clear on the difference between inflation and deflation, recession and depression, what "monetizing debt" means, why GDP matters, etc. Economics may seem like voodoo at times, but the authors start with the basic international accounting. An economics major, or someone who reads the Wall Street Journal
every day and follows all of it, may find this rather basic, but it was helpful for me.
Mauldin and Tepper look at the entire world's macroeconomic situation and argue that chickens are coming home to roost, the sky is going to fall, etc. etc. However, despite the dire title and some of their dire predictions, they often sound disturbingly optimistic despite telling us that the end of the "debt supercycle" is unlike anything seen in the modern industrial world. This is understandable when you realize that they are mostly talking to the "investor class" -- i.e., rich people. If your big concern for the future is where those spare millions you have lying around can get the best return, then even a Great Depression-level event is not really of heart-palpitating urgency to you. Sure, it will suck a little that you might have to lay off a few of your domestics, but it's not like you're ever going to be hungry.
When the authors talk about "austerity measures" and "age-related liabilities," though, they are talking about social safety nets snapping, jobs evaporating, and pensions disappearing. So there is a certain class of people, whom the authors really aren't talking to, for whom "Endgame" might mean not so much buying fewer boats but trying to stretch the grocery budget with dog food. Throughout the book, they refer delicately to "a rough transition" and "hard economic times," but don't really translate it into what that means for the average middle-class or working class person. However, their worst-case scenarios describe an economic apocalypse in more than one country. They believe we'll eventually get through it, no matter what, and of course we will — just like the people living in Europe got through two world wars. Well, except for the few million who didn't, but never mind.
Is the worst case scenario really going to happen? In the U.S.? Hard to say. The approach Mauldin and Tepper take is to lay out scenarios from bad to worse: there really are no "good' scenarios, since as they point out, we've been putting off dealing with the problem for so long that even if all of our politicians magically turn into sober, responsible adults, there's no solution that doesn't involve pain. It's just a matter of how much pain, and spread over how long a period. If the Powers That Be act rationally and responsibly, they can do a certain amount of harm reduction. If not (and let's be honest, even the authors' money is on "not"), then it will just keep piling up until nothing can delay it any longer.
What is "it"? Well, the bill on all our borrowing coming due, basically. The U.S. has been able to get away with running huge deficits forever because we are the goddamn U.S. of A., but even the United States can't do that forever. Endgame
isn't just about the U.S. though. Tepper and Mauldin look at the whole world and then run through scenarios for several countries, including the US and the UK, Australia, Japan, Greece, Italy, Spain, Portugal, the Baltics, and Eastern Europe. As bad as things may get in the US and the UK, the situation for other countries is even worse. Some countries could be facing hyperinflation and complete economic meltdown. Theoretically, so could the U.S., though we're so big and have so many natural resources and so much human capital that it really is unlikely the country will literally go bankrupt. What might happen politically, though, is beyond the scope of this book.
I've been pretty vague on what specifically Endgame
describes, but that's because I don't want to try describing 300 pages of charts and economics terms. This is a very "technical" (in economic terms) book, with all the graphs and tables and discussions of interest rates and deleveraging and credit and sovereign debt and the like you could possibly want. In a nutshell, the authors say there are exactly three things a country can do when its debt becomes unmanageable:
- Inflate it away.
- Default on it.
- Devalue their currency.
None of those are good. But there is no magical fourth option. Well, the magical fourth option is "Some new industry comes along that brings a boom of prosperity." Not exactly something to count on, though that is in fact what politicians and other people opposed to change tend to do.
The whole book goes through all the variations on the above three options, what they mean, which ones are most likely for which country, and which ones are worse.
For Americans, default is pretty unlikely. Mauldin and Tepper predict a period of severe deflation followed by inflation -- i.e., first our economy shrinks, and then prices will go way, way up. The best-case scenario, according to them, is cutting way, way back on spending and reducing taxes; they're definitely more on the Republican end of the spectrum, as evidenced by the fact that they mostly talk about cutting way back on things like Social Security and Medicare and not so much about our enormous defense budget. Still, their points are hard to argue — we simply can't keep funding entitlements at the levels we currently do.
Do I feel more educated after reading this book? A little. Do I feel better-prepared for whatever financial catastrophe is going to befall us? Well, I'm better off than the average person but definitely not in the "investor class," so I still feel pretty much like everyone else, subject to the whims of forces far beyond my control. Basically, their best advice for the average person is to save and be thrifty and be ready for a bumpy ride. Oh, and if you live in Greece or Spain? Sorry, it sucks to be you.