Black Swan: 'Don't give a debt junkie more debt'

Written By Brian Hicks

Posted June 10, 2010

swan

Love him or hate him, here’s the latest from the Black Swan himself.

Needless to say he is still bearish…

From CNBC entitled: Debt Spreading ‘Like a Cancer’: Black Swan Author

The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book “The Black Swan,” told CNBC on Thursday.

“We had less debt cumulatively (two years ago), and more people employed. Today, we have more risk in the system, and a smaller tax base,” Taleb said.

“Banks balance sheets are just as bad as they were” two years ago when the crisis began and “the quality of the risks hasn’t improved,” he added.

The root of the crisis over the past couple of years wasn’t recession, but debt, which has spread “like a cancer,” according to Taleb, who is now relived that public attention has shifted to debt, instead of growth.

The world needs to prepare itself for austerity, he warned. “We need to slash debt. Unfortunately, that’s the only solution,” Taleb said.

Other analysts warned about austerity programs spreading from the euro zone to the US where the growth in debt will become unsustainable over the longer term.

Obama administration’s efforts to pull the US out of recession haven’t succeeded, according to Taleb. “It’s not that they make mistakes, it’s that they almost get nothing right.” Moreover, a second major stimulus package may be futile, he warned.

“Obama promised us 8 percent unemployment through stimulus. It hasn’t worked.” There are significantly more liabilities in the US than in other countries around the world, he said.

“Don’t give a junkie more drugs, don’t give a debt junkie more debt.”

The “Black Swan” metaphor is used to describe those rare, unexpected but consequential events that people cannot predict because they view the world through a sort of tunnel vision – as something structured, ordinary, and comprehensible.

“I want to live in a society that is robust to adverse events. We don’t live in that world,” Taleb said.

 

It’s not over folks…not by a long shot.

Related Articles:

11 Black Swans for 2010

The Black Swan: “They’re not removing the tumor”

The Black Swan: Crisis is “Vastly Worse” than the 1930’s

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