This week in Dallas, John Mauldin will kick off his Strategic Investment Conference with a star-studded group of speakers including Jim Grant, David Rosenberg, Richard Fisher, Lacy Hunt and many other luminaries.

Anyone wondering what's on his mind should know he is quite concerned about the next recession and how governments react to it. That was his focus when he spoke at the 7th Annual Financial Advisor Magazine's Inside Retirement conference in Dallas, Texas, on May 6.

Mauldin delivered a sobering description of what will cause the next recession in the United States. Today, the Treasury bond market does not have an inverted yield curve, a popular indicator of future recessions. "We're not going to get that (short-term interest rates rising above long-term interest rates) at today’s artificially low rates." An inverted yield curve, he explained, is not the cause of recession anyway. “I don’t see anything indigenous in the United States that says we are going to have a recession this year or even next year.”

Mauldin also addressed the socio-psychological and political aspects in our nation that will play a major role in the next serious recession. “We didn’t see the coming psychological shift,” he said. Mauldin spoke of a 10-day immersion course called “The Singularity” that he highly recommends to everyone who can take it.

“The Singularity is Near” is a 2006 book by futurist Ray Kurzweil. Its thesis centers on how technology and artificial intelligence will surpass human intelligence by 2045. Since the publishing of the book, special Singularity “colleges,” “universities” and “immersion courses” are proliferating. Experts are getting a lot of mileage out of a modern-day Orwellian portrait of the future—only George Orwell’s “1984” is today’s 2045. Dramatic technological will accelerate and destabilize an ever-evolving workforce.

Psychological shifts among the generations are encouraging political revolt and, for some, economic decline at the same time as lifespans are lengthening. The combination is a formula for major trouble. “Millennials are dropping out of the workforce at a rate we’ve never seen in history,” said Mauldin. Speaking of May 6th employment numbers, “352,000 people 25-54 years old dropped out of the work force,” he added. 

Baby Boomers are taking jobs from younger generations. “We’re not hanging up our spurs,” said the 66-year-old Texan. “We’re having too much fun!”

But not everyone is having a ball. “Peggy Noonan hit the ball out of the park yesterday,” said Mauldin, paying homage to former Reagan speech writer peggy Noonan, another headline speaker at the Inside Retirement conference. “It is the protected class versus the unprotected class,” he said, referring to Noonan's explanation of the appeal of Donald Trump to Americans who have been passed by in a Darwinian economy.

Mauldin said that there is a mentality of the wealthy in the United States: “We’ve got money; we can get out of the regulations.” Mauldin echoed Noonan's belief that Trump is basically a non-partisan aberration.

Negative Interest Rates In The U.S.

“The velocity of money will be dropping because that’s going to take us to negative rates,” Mauldin said. “It’s American businesses that recover; it’s not a result of Fed policy,” he said. “The Federal Reserve is like 0 for 300.”

Central banks "are religious in their beliefs that consumption is the driver of the economy.”  He noted that the U.S. Fed's belief in the expansion of debt through a variety of mechanisms would come back to haunt the economy. “We know that debt is a drag on growth,” said Mauldin. “Our growth, at best, is going to be about 1.5 percent over the next 10 years.”

Mauldin believes that by the time the next recession arrives, the Federal deficit will be $1.5 trillion, and he predicts that the Federal deficit does not get below $1 trillion for the next 10 years. “The shift that’s happening today is going to be even more profound in 2020 to 2024,” said Mauldin.

Global Debt Bubble And Currency Wars

“Emerging market are going to be tied to another problem—currency wars,” said Mauldin. He said that these currency wars are going to “roil things.”

The fallout will be far-reaching. “People in the U.S. and Europe are going to get very angry,” he said. “The bond bubble is not over. Get used to it.”

The ending won't be pretty. “There is nothing we can do short of a radical restructuring of debt,” he said. “The concept of a ‘global debt Jubilee’ by 2020 is not that far-fetched.”

Mauldin’s reference to a global debt Jubilee dates back to the Bible and freeing all those enslaved by debts. Countries around the globe formed Jubilee 2000 in the early 1990s, with the goal of absolving a significant portion of debt around the world. Mauldin’s thinking is in concert with all the thinkers who see debt absolution as the only way out of currency quagmires and, in our case, the erosion of the middle class in America.

“I think sometime in the next 20 years, we [will[ have to get radical,” said Mauldin. He said that we need to restructure tax and regulatory issues to work toward this “global debt Jubilee.” He addeid that central banks are going "to walk off the monetization cliff together.” .

“I have been putting money with currency traders for almost 30 years, and it’s a tough market,” said Mauldin. Surprisingly, Mauldin admitted, “I’m the guy that put my mortgage on Japanese Yen options.” The Japanese yen has proven so volatile – basically having a lost century like the stock market’s 2000-2010 lost decade – that Mauldin has taken to buying 10-year currency options.

Europe Or Asia Could Cause The Next U.S. Recession

“I look to exogenous shocks from either Europe or China to trigger problems in the United States,” said Mauldin. Europe must figure out what to do with it’s immigration issues and its “massive, massive debt issues.” Mauldin said, “The only way for the European Union to stay together is to mutualize their debt.”

Resurrecting the 2008 TARP-fueled media term, Mauldin recalled the effect of “Japan zombie businesses’ and ‘zombie banks’” inciting the global debt bubble.

Mauldin sees the deflating of the global debt bubble as triggering a day of reckoning, characterized by “the bursting of the bubble of government promises.” Right now, the government promises us entitlement programs, and eventually something’s got to give with this house of cards it has built."

Bailouts won't be politically or economically feasible. “You cannot get $200 trillion out of the American unprotected class, and that’s going to upset the unprotected class even more,” said Mauldin.

Lisa A. Ditkowsky, CFP, is the president of Pllush Capital Management Inc. and can be reached at (847) 859-2530.