More on the Endgame

John Mauldin, over at the Big Picture:

Let me jump out on a real limb. I was having dinner last Monday with Christian Menegatti, the #2 economist at friend Nouriel Roubini’s economic analysis shop. We were comparing notes (imagine that), and he said their opinion is that the US has until 2015 before the bond market really calls the deficit hand. Knowing that Nouriel is seen as the ultimate bear, it makes me nervous to put out my own even more bearish analysis.
I think the crucial point will be reached in late 2013. If the bond market sees a serious move to control the deficit, I think they let us “skate.” Then we Muddle Through. But if not, I think we begin to see some real push-back on rates then.
Why so early? Because bond investors are going to be watching the slow-motion train wreck that is happening in Europe and especially Japan. It is one thing for Greece to default (which they will in one form or another, with lots of rumors flying this morning), yet another for Japan to do so. Japan is big and makes a difference. Japan could start to go as early as the middle of 2013. As I have said, Japan is a bug in search of a windshield. Whenever this happens, 2013 or a year or so later, it is going to spook the bond market. The normal indulgence that a superpower and reserve-currency country would be accorded will become much more strained. It will seemingly happen overnight. Think Lehman Brothers on steroids.
I think the chances we will deal with this potential crisis are about 75%. Not doing so is such a horrific outcome that I think politicians will do the right thing. See, I am an optimist. (What was it Winston Churchill said? “You can always depend on the Americans to do the right thing, after they have exhausted all the other possibilities.”)

He is endorsing $3 in spending cuts for every $1 in tax increases.  I would think more along the lines of drastically overhauling the heath care sector with single payer, slashing defense spending and wrapping up the wars in Iraq and Afghanistan, (and Libya), then $2 in tax increases/tax reform for every $1 of spending decreases.  I think he is right that the deficit and debt are huge issues, but I think he is slanted too much in an anti-government direction.  Likewise, he is much more optimistic about Republican politicians being able to fix this mess.  So far, I have yet to see a decent likely candidate for the GOP nomination in 2012.  I sure don't want any of the guys who participated in the debate last week running the country.  He also doesn't mention issues we may face with resource scarcity or climate change.  We face a lot of hurdles in the near future, and we're going to have to put aside much of our enmtiy with our political opponents and make true shared sacrifice.  So far, I don't see much of that from Republicans.  I don't even see them acknowledging what I think are pretty obvious facts.  This is going to be a tough process.