1. Thoughts On the Continuing Crisis The Elements of Deflation
A Presentation by
John Mauldin,
Author of Bull’s Eye Investing
And the Editor of Thoughts from the Frontline

2. Is the Glass Half Full…

3. Or is it Half Empty and Leaking?

4. US Headline CPI Inflation

5. The Elements of
Deflation

6. History Tells Us Without Wage Pressure There is Little Chance of Inflation

7. Jobs Losses are Far Below Average This is NOT a Typical Recession

8. Total “U6” Unemployment Including Part-Time Workers is 16.8%!!!

9. 9 Million Part Time Workers

10. 33% Unemployed for 6 Months

11. A Few Data Points on Unemployment
If you include “discouraged workers” with U6 then unemployment is 21.1%, and therefore more than 13% total unemployed
Since 1999, even as the population grew by 33 million, the private sector has lost 235,000 jobs (BLS data) because of job losses in the current recession.
Wages are falling and Hours Worked is at an all time low 33 hours
18 million NEW jobs will be needed in five years to get us back to employment levels last seen in 2007

12. The Impossible Happens The US Consumer Stops Borrowing

13. The Psyche of the American Consumer Has Been Permanently Seared with the Pain of Falling Home Prices and Stock Prices ************** Faced with Retirement Issues, And the Need for Increased Savings, Consumer Spending is Going to be Challenged for Years

14. Savings Actually Explode Upward During this Great Recession!!!

15. Housing Data Points Over 1/3 or Mortgages are Now Underwater
It will be 2011 Before We Move Through the Excess Housing Inventory
Foreclosures are Adding More Homes to the Inventory of Unsold Homes
There May Be as Many as 500,000 Homes in the Shadow REO Inventory

16. Most likely recovery is a “W” with a long tail due to slow growth and rising mortgage rates.
Fall
2005

17. The Effect of the Stimulus
Without the Stimulus, GDP would have been a -6% in the Second Quarter!
Without the Stimulus, GDP Would Be Flat to Negative this Quarter
Question:
What Happens When
the Stimulus Goes Away? Especially to States and Municipalities?

18. Government Receipts Are Down

19. Be Careful What You Wish For

20. Volume of Word Trade Collapses 20%

21. And Thus Capacity Utilization Falls off the Cliff

22. Bank Lending to Business Plunges

24. M2 is Flat or Falling Since the End of February

25. The Elements of Deflation
If you add:
Rising Unemployment and Wealth Destruction and Reduced Borrowing and Lending and Decreased Final Demand and Increased Savings and Very Low Capacity Utilization and Massive Deleveraging and $2 trillion in Bank losses and a Very Weak Housing Market and Slowing Velocity of Money

26. Nothing But Bad Choices
You Get Deflation and
Nothing But Bad Choices

27. Gentlemen, I have not yet Begun to Print
Bernanke:
Gentlemen, I have not yet Begun to Print

28. Nothing But Trillion Dollar Deficits as Far as we Can See!!!!

29. GDP = C + I + G + (E-I)
Basically, Savings equals Investments If the Government “Dis-saves” then the difference must be made up by Consumers, Business and Foreigners. *But government spending has a multiplier of essentially nothing, and taxes have a multiplier of 3! And if you raise taxes?!?!?!

30. Japanese Disease?
Total Japanese debt to GDP is about where it was 20 years ago, but the government debt to GDP has risen from 51% to 178% and rising fast.
What did they get for all that debt? The Japanese have not added any jobs for two decades, and their nominal GDP is where it was 17 years ago