Dear Reader,

I hope you had time to digest the “big ideas” I covered in the first three installments of this five-part series on the individuals who have been influential in shaping my worldview. If you missed any of them, you can access them, here.

Today, I cover a trend that has wide-ranging implications... not only for investors, but for every citizen. That is, how the over-indebtedness of the country has made the economy resistant to fiscal and monetary stimulus.

Until the debt burden is reduced, further debt-financed stimulus will not spur growth. This is crucial to understand with Washington currently “hyping” the tax plan and future fiscal stimulus. It is even more important to grasp if you are allocating capital based on the potential effects of current or future stimulus packages.

My friend Lacy Hunt has done some excellent work on this trend, which I know will blow you away. I consider my insights into Lacy’s work essential reading for every investor. This installment in the series will help you to see the bigger picture, and not get caught up in short-term hype.

I have included an excerpt from the Lacy Hunt article, below. When you click to read the full article, you can share your thoughts and feedback at the bottom of that page.

John Mauldin

The Fed Has Put Itself Out of Business,
Where To Now?

The Fed’s failure to address over-indebtedness has caused irreversible damage to the economy. When debt levels rise past a certain threshold, additional debt-financed stimulus becomes ineffective. Worse yet, when an economy becomes extremely indebted, monetary policy stops working altogether.

I often get asked if I am still a deficit hawk. The answer is, “Yes, more than ever,” because current debt levels are rendering monetary and fiscal policy ineffective. And that, my friends, is a game-changer.

With traditional methods of stimulus incapable of spurring growth, what will happen in the next downturn? As this trend develops, it could force a rewiring of the financial system and a deleveraging of the global economy. Given the wide-ranging implications, this is a critical trend for investors to grasp.

When I need insight into the relationship between debt and the economy, there is one person I turn to. And that is my dear friend, Lacy Hunt.