Book Review: Endgame by John Mauldin and Jonathan Tepper

Written by John Lounsbury

If there ever was a time to read Endgame, it is now.  The full title gives a stronger message about what the book addresses : Endgame: The End of the Debt Supercycle and How It Changes Everything

I have had this book for over a year, finished reading it all the way through shortly after receiving it and have returned to reread various sections several times since. It is a book that will keep coming off the book shelf for further review long after the first reading.

There is a strange sensation when reading this book for anyone who, like me, has read John Mauldin’s weekly epistles to the multitudes for quite a number of years; it is like reading something written by a family member. There is a long-familiar style that permeates every page, even though the book has a skilled co-author in Jonathan Tepper.

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Some of the arguments and discussions presented are in fact related to things that have appeared in weekly newsletters. And yet the book seems fresh and cogent on its own merit – definitely not a rehash of anything that came before.

This book is especially valuable this summer because it appears that the Eurozone may finally make some definitive moves to resolve the political crisis, which ultimately is what they have. The debt and economic issues are merely symptoms of the underlying political mess. Mauldin and Tepper have written a guide book for the debt and economic burdens that must be resolved by the various portions of the Eurozone and the rest of the EU (European Union) in Part Two of the book (A World Tour: Who Will Face Endgame First?), which is divided between the U.S. (Chapter Nine, 40 pages) and the rest of the world (Chapters Ten through Fifteen, 78 pages with 31 devoted to Europe).

The Overview

Considering themes that run through the book, one would be “We should have known better.” That idea is found in the introduction and repeatedly throughout the book, right up to Chapter Fifteen “Unintended Consequences” where the authors write (p. 287):

“…many, if not all of the bubbles that have occurred since the Dutch Tulip Mania in the seventeenth century have been precipitated by a combination of financial liberalization and innovation.”

The “should have known better” argument reappears throughout the book in different forms. Perhaps the best example is Chapter Five, “This Time is Different”.  This chapter is devoted to a discussion with the authors of the book with the same title (Carmen Reinhart and Kenneth Rogoff).  This reviewer found the discussion created a metaphoric image:  The blasé attitude of the dancers in the ballroom of an economic boom cruise ship remain oblivious to the fact that every once in a while that ship can be an HMS Titanic until they find themselves in salt water surrounded by ice floes.

The conclusion is obvious, we should have known better than to assume that no more disasters could affect us. Yet the authors leave a lingering doubt with this reader that they have the opinion we still may not “know better” and that past ignorance may still be a player in future events.

And the future events still have a long way to go to complete the drama entitled “The Endgame.” Right at the start of Chapter One, the crisis of 2007-08 is labeled “Act I, The Beginning of the End,” an act that consumed 60-years following the end of World War II.

If this book has one overriding positive quality, it provides a plain language summary of the majority of economic thinking regarding the debt bubble that has built up over the past decades. That quality will make this a very worthwhile book for the average man on the street. The authors stated (p. 181):

… we purposefully set out to write so simply that even a politician could understand the nature of our problems.

Unfortunately, this strength is also the book’s greatest weakness; thinking outside the economic mainstream is not included to any great extent. That leaves some of the economic observations hanging in mid-air for this reviewer.

Origins of the Problem

Chapter One is an excellent outline of how we got where we are.  It also presents a good summary outline of the various ways we may get out of the problem. A very important point is emphasized on p. 25 about the nature of the decline in household debt in the United States (emphasis from the book):

The extremely important point is this: for the most part, debts have not been extinguished, merely transferred. Debt is moving from consumer and household balance sheets to the government.

A clear consequence of reversing this debt transfer, or even stopping it from proceeding further, is that the Main Street economy would be further handicapped. The transfer of debt has created increased liquidity (or diminished the loss of liquidity) for those relieved of debt, and thus the broader macro economy is being supported. This relationship was not discussed in the book. This is probably okay after thinking about it, because it is parenthetical to the theme. But it is an example of some of the thoughts I would have liked to have seen discussed, perhaps as a sidebar or a footnote.

In one area, however, Mauldin and Tepper are very clear in this discussion: The problem is global and ultimately the solutions will be global, whether by design or the natural consequences of individual countries pursuing “beggar thy neighbor” policies (my words summarizing what they wrote, not actual words from the book).

Discussion of Money

One discussion this reader wished were included would have expanded on the stated view that the U.S. sovereign debt increases are either a repayment burden for the future or a giant Ponzi scheme. The authors do not further address the question of how money can be expanded to meet growing demand from increasing population numbers and economic growth.

There is a view becoming more widely discussed that increased sovereign debt is merely one mechanism for expanding the money supply to meet real economic need (but perhaps not the most efficient way of accomplishing that objective). The economic theories at play here distinguish government debt for countries with sovereign floating currencies (e.g. China, Japan, Australia, Canada and the U.S.) from private sector debt and sovereign debt for countries that use a currency they do not control (countries that peg to the dollar – or any other currency – and the Eurozone).

The authors clearly understand the differences between sovereign currencies and non-sovereign. See, for example, p. 216, where they discuss the shortcomings of the euro as currently implemented. They conclude:

Europe has almost none of these [requirements for an optimal currency area]. Very bluntly, this means it [Eurozone] is not a good currency area.

However, for some readers the significance of that statement may be lost without considerably more hand-holding than the authors provide.