"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Friday, October 1, 2010

Black Swan Author Predicts Demise of the Federal Reserve

Nicholas Nassim Taleb, author of The Black Swan, recently spoke just after Tim Geithner did, at the Washington Ideas Forum.  For those that follow Taleb, it was no surprise that he spared no punches at Geithner, et al.  A few interesting bits from the article at The Atlantic:

"Did someone predict the crisis before it happened? ... If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming, then I want to hear what they have to say."
"You have a million people on this planet who call themselves economists," Taleb said. "How many people understood the risks of the system [before the crisis]? ... Paul Krugman was not one of them."

 "This transformation of private debt, with all the moral hazard it entails, into public debt is, number one, from a risk standpoint, bad," he said. "And from an ethical standpoint, I find it immoral. The grandchildren should not bear the debts of the grandparents."
Taleb called Friedman's book The World is Flat "very bad for society," arguing that it did not adequately assess risk. 
One person who did see the crash coming? Nassim Taleb. "In 2008, when the crisis happened, a lot of heads of state were interested in my message," Taleb said. "Including David Cameron."

Asked where the economy would be in 25 years, Taleb gave the vague response that "everything fragile will break." Oh, and that the Fed won't exist anymore. It will be replaced by something "I think more organic and that makes more sense."
Full article HERE.

Video Below:




Taleb is one of the few people that I tend to agree with the most.  I believe viewing the economy as a complex system, the way an engineer would, is necessary.  When done in that regard, issues of complexity, fragility, robustness, etc... become much more clear than merely looking at profits and losses.  For what does one gain, if the system is about to collapse?   Actually, a lot if the proper bet is made.

The question that remains is:  how does this play out amongst nations?  Many analysts don't look beyond economics to consider influential geopolitical factors.  The Great Depression did not end with innovative uses of monetary and fiscal policy.  The Great Depression ended with the dropping of bombs... and a new monetary system emerged.  A rebuilding and the emergence of a new world.

Next week will give us a clue as to how the G20 summit in South Korea plays out.  Next week, the IMF meets.  The G20 and the IMF are the two most important institutions to follow when looking at the grand scheme of things.  These developments will tell us if conflict or cooperation lies on the horizon.

2 comments:

Dave Narby said...

The problem Taleb had with predicting what will come, is that while the crisis was numerical in nature and therefore quantifiable, what will come is political in nature, so it is very difficult to quantify.

There are multiple groundswells in this country (e.g. End the Fed, state's rights, nullification, etc.), I would imagine this is not restricted to the US.

I believe we will see something along the lines of what FOFOA has outlined (freely traded gold), along with various fiat currencies, on or around 2012.

Misthos said...

Dave,

Thanks for visiting my site. It's good to discuss these things with people that understand what has happened, and what continues to evolve.

I know many people that follow politics religiously, yet when you discuss the marriage of politics and economics, their eyes glaze over. You understand that they are two different factors that react to eachother in ways that are difficult to quantify.

And so I agree with what you're saying. But I have followed Taleb and I've noticed that he as well as many other analysts keep the analysis to the markets and economics in general. That is, they don't wander off and publicly state the political and social repercussions.

My guess is that it's too depressing for the host's viewership. Or the host, be it CNBC or any other forum, has a narrower focus. Marc Faber among a few others seems to be the exception.

There are two worlds going on right now. The past, and the unfolding present. The past is still very well with us today. It is what we do on a day to day basis. But the world that is unfolding has yet to fully materialize. It's a process not an immediate event. But that process can accelerate and deccelarate as we have witnessed these past three years.

I read FOFOA frequently. And what I want to accomplish with this blog is to follow up on the more macro current events as they unfold. FOFOA has a narrative that was originally described by ANOTHER and FOA. It's very detailed, and it involves both monetary theory and the development of events we can't prove yet (BIS, Saudis, the EU). We can only see how this develops and compare it to what ANOTHER, FOA or even others have said.

Keep in mind that the ANOTHER narrative is roughly a decade old. The world is extremly complex, and many events could have affected its outcome.

I can't put a date to when this monetary and geopolitical evolution will materialize, nor describe in detail how it will transpire. I can only guess as I follow developments. But one thing I am sure of: all global monetary systems have a finite lifespan. Just as Bretton Woods began in 1944 and ended in 1971, so too will the system created in 1971 end.

And yes, many countries are experiencing this crisis. I'm living in Greece now. And there has been rampant corruption. But what many Greeks don't realize, IMO, is that it is all part of the same global crisis. They are not "special" so to speak. Large scale corruption has taken place in the US, it just takes a different form. But even that corruption is a mere symptom of the end of a monetary era. It's not the cause.

As for gold, it is difficult to foresee how individual nations react to it. Will the US once again outlaw and confiscate it? What about large scale producers of gold? Will they become the new "Middle East" with puppet governments?

Or will the IMF, BIS, and G20 actually pull it off and ensure a smooth transition into a new global monetary system?

Or will the US pull something out of its sleeve and surprise everyone?

I don't rule anything out, though I am of the opinion that gold will ultimately be used in the new system in one form or another. And most likely, it use will be by chaotic default, not design.

We live in very interesting times. Thanks again for visiting the site. I look forward to any other comments or observations you may have.