Zero Hedge
November 18, 2013

“Debt increases tail-risk,” warns anti-fragility expert Nassim Taleb, “whether it’s personal, corporate, or governmental.”

Nassim Nicholas Taleb, scholar and statistician.  Credit: Agathe via Flickr
Nassim Nicholas Taleb, scholar and statistician. Credit: Agathe via Flickr

A rise in debt, he warns, implies nothing less than a rise in “the risk of catastrophe,” and Taleb chides, governments “should be focused in risk-management… instead of creating these risks.” This brief Bloomberg TV clip cuts to the chase as the normally circumlocutory Taleb unloads on the perils of central banks, “Mr. Greenspan created tail risk by eliminating the business cycle,” and since then tail-risks have accumulated with debt the “number one creator of these risks.” In a fascinating phrase, Taleb notes, “corporate debt is benign,” since in failure it turns into equity, “but government debt is another matter… for it turns into inflation or worse invasion…”

Reflecting on his “skin in the game” approach to risk management (forecast and over-confidence)…

Mr. Greespan and Mr. Bernanke are unharmed by their mistakes… but who is harmed – you, me, all taxpayers.

On models ignorant of tail-risks

“borrowing money to ‘create growth’ is an incorrect thesis – take all the ‘spurts’ of growth from the Industrial Revolution onwards, debt has been used to finance wars – not a good thing

On Keynes…

“Keynes understood uncertainty all too well and would have encouraged borrowing like this”

“Even Keynes would not have encouraged quantitative easing”

“There is no excuse to accumulate debt on the grounds of growth”

What are the elements that create the framework for the next crisis…

Simply put, Taleb says governments are “painting the tape” as headline numbers may look good but the middle class is being destroyed

Take 8 minutes and watch/listen to Taleb…

And the infamous Black Swan of Cairo article that repressing ‘normal volatility’ for long enough creates an ever-increasing likelihood of ‘catastrophic volatility’…

ForeignAffairs


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