John Mauldin: Will Take 4-5 Years to Get out of Debt Mess

By on December 24, 2011

John Mauldin - Millennium Wave InvestmentsLisa Murphy and Dominic Chu, hosts of Bloomberg Television’s “In the Loop,” interviewed financial author John Mauldin regarding his bleak view of Europe’s prospects. Thomas Brown, Bloomberg contributing editor, was also on hand touting the virtues of Bank of America (BAC).

Murphy asked Mauldin to comment on the issues at Jefferies Group (JEF). He indicated problems in financials wouldn’t be isolated to single firms.

Mauldin stated he had ground-breaking research showing the Mayans were economists and were predicting the end of Europe, and not the end of the world. So 2012 will be the year we see Europe fall apart.

When Chu asked how long it would take to get out of the “debt mess,” Mauldin responded 4-5 years. This as been the case historically, according to Mauldin. He said we’ve taken a road that will cause us to make difficult choices and bad choices.

Brown said healthy de-leveraging is apparent in that consumer debt service to income has fallen from 14% to 11%. Mauldin agreed that the consumer has been properly de-leveraging, but the U. S. government has been re-leveraging.

Mauldin said we will have problems when the government starts de-leveraging which will reduce GDP by about 1% per year. This will cause a “knock on” effect to the economy.

Mauldin commented further on the bickering in Washington, the effect of the debt cancer on the little guy, effects of the payroll tax cut, and exposure of banks to derivatives.

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