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John Mauldin - The United States: Are the Seeds Already Sown for the Next Macro-Market Deflation Crisis?

January 22, 2014 | About:

Outside the Box

The United States: Are the Seeds Already Sown for the Next Macro-Market Deflation Crisis?

John Mauldin

January 22, 2014

Greg Weldon has long been my favorite slicer and dicer of data – his charts and insights on charts really help me keep my eyes peeled. But in order to get across to us the drastic state of the economy as we plunge headlong into 2014 – a year that we all know will be pivotal – Greg has felt it necessary to resort to a rather trenchant metaphor from the year just past. Yes, says Greg, the economy is … Breaking Bad.

But – listen up now – bad is now good. At least temporarily.

Good, because bad macroeconomic data means an ongoing (if slightly tapering) supply of monetary steroids (Greg's term) will be forthcoming from our pushers, the central banks of the developed world.

Greg reminds us that the "Breaking Bad Era" actually got underway decades ago. He traces its history back to pre-WWII manipulation of the bullion market; to the historic post-WWII Bretton Woods agreement that gave the US currency "seigniorage," thus setting it up to become the world's reserve currency; and right on through to the closing of the gold window by Richard Nixon in 1971.

Since then, the US economy has been dependent on steady – and of course ever-growing – doses of monetary steroids, with only one brief drug-free stint in the Paul Volcker Rehabilitation Center in the 1980s.

And of course the Greenspan Fed did try to do the tighten-up from time to time; but each attempt brought greater pain during withdrawal … and the ever-compassionate Dr. Greenspan took pity on us and increased our monetary prescription.

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