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May
29
2018

The 2020s Might Be The Worst Decade In U.S. History
John Mauldin

I recently wrote about a looming credit crisis that’s stemming from high-yield junk bonds. The crisis itself will have massive consequences for investors. But that’s not the worst part.

The crisis will create a domino effect and trigger global financial contagion, which I usually refer to as "The Great Reset."

The collapse of high-yield bonds will hit stocks and bonds. Rising defaults will force banks to reduce their lending exposure, drying up capital for previously creditworthy businesses.

This will put pressure on earnings and reduce economic activity. A recession will follow.

Global Recession

This will not be just a U.S. headache, either. It will surely spill over into Europe (and may even start there) and then into the rest of the world. The U.S. and/or European recession will become a global recession, as happened in 2008.

Europe has its own set of economic woes and multiple potential triggers. It is quite possible Europe will be in recession before the ECB finishes this tightening cycle.

As always, a U.S. recession will spark higher federal spending and reduce tax revenue. So I expect the on-budget deficit to quickly reach $2 trillion or more. Within four years of the recession’s onset, total government debt will be at least $30 trillion.

This will further constrain the private capital markets and likely raise tax burdens for everyone—not just the rich.

Political Backlash

Meanwhile, job automation will intensify, with businesses desperate to cut costs. The effect we already see on labor markets will double or triple. Worse, it will start reaching deep into the service sector. The technology is improving fast.

The working-class population will not like this and it has the power to vote. “Safety net” programs and unemployment benefit expenditures will skyrocket.

Studies show that the ratio of workers covered by unemployment insurance is at its lowest level in 45 years. What happens when millions of freelancers lose their incomes?

The likely outcome is a populist backlash that installs a Democratic Congress and president. They will then raise taxes on the “rich” and roll back some of the corporate tax cuts and increase regulatory burdens.

At a minimum, this will create a slowdown but more likely a second recession. Recall (if you’re old enough) the back-to-back recessions of 1980 and 1982. That was an ugly time for those of us who lived through it.

Of course, that presumes a recession before the 2020 election. It may not happen—I put the odds at about 60%–70%.

I am a financial writer, publisher, and New York Times bestselling-author. Each week, nearly a million readers around the world receive my Thoughts From the Frontline free investment newsletter. My most recent book is Code Red: How to Protect Your Savings from the Coming Crisis. I appear regularly on CNBC and Bloomberg TV. I’m also Chairman of Mauldin Economics, a research group that provides monthly analysis and recommendations to thousands of readers around the world. I was previously CEO of the American Bureau of Economic Research. Today I am President of the investment advisory firm Millennium Wave Advisors, LLC. I am also president and registered principal of Millennium Wave Securities, LLC a FINRA and SIPC registered broker dealer. When I’m not traveling to speak at conferences and events, I live in Dallas, TX. I’m also the proud father of seven children.

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