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Nassim Taleb: "The Government Debt Is Becoming A Pure Ponzi Scheme"

Tyler Durden's picture




 

In an interview conducted with Business Week, Nassim Taleb discusses his view of the biggest black swan in the market currently, and isn't shy to call government debt a "Pure Ponzi scheme." - When asked where he the biggest potential source of systemic fragility is, he responds: "The massive one is government deficits. As an analogy: You often have planes landing two hours late. In some cases, when you have volcanos, you can land two or three weeks late. How often have you landed two hours early? Never. It's the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things costs more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it. The problem is getting runaway. It's becoming a pure Ponzi scheme. It's very nonlinear: You need more and more debt just to stay where you are. And what broke Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers." Alas, Taleb is wrong: Ponzi or not, today's UST auction will likely once again come at a multi year high Bid To Cover as the suckers (especially those who recycle Fed discount window money) just refuse to go away.

Some other excerpts:

Q: The new edition of The Black Swan includes
what you call "10 principles for a Black-Swan robust society." One of
them is: "Citizens should not depend on financial assets as a
repository of value and should not rely on fallible 'expert' advice for
their retirement." Can you explain what you mean?

Taleb:
The problem is that citizens are being led to invest in securities they
don't understand by people who themselves don't quite understand the
risks involved. The stock market is probably the best thing in the
world, but the true risks of the stock market are vastly greater than
the representations. And this leads to extremely strange situations in
which, say, someone has a bakery, is extremely paranoid about
suppliers, very careful about risks, and protects his business with
appropriate insurance. Then, at some point, he puts his $122,000 in
savings in a fund that he knows nothing about, based on risk measures
he knows nothing about, in companies very few people know much about.

People
use "risk measures," but you're really not measuring anything like you
measure temperature or distance. You are making a speculative
assessment of a future event. That's not measuring, that's estimating.
And as we saw with BP, with the banking system, and with Toyota,
companies themselves are hiding risks from the security analysts.
They're cutting corners. Companies have a tendency to hide risks.

So
someone extremely careful and prudent in the management of his own
affairs will be completely careless with the half of his savings
invested in the stock market. I'm saying: Don't use the stock market as
a repository of value. It has vastly more risks than you think.

I
was at an investment conference last week with mutual fund managers and
financial advisers. There were a surprising number of mentions of the
possibility of "Black Swans," and your name came up. Do you think those
people understand the concept?

No, they don't get it.
My Black Swan idea is very different: There are events that you can't
forecast, and you need to be robust to these events. If I think that
someone doesn't understand Black Swans, I'm sure that whatever bad news
happens to him will be Black Swans for him but "white swans" for me.

What should you do with your savings?

We
have this culture of financialization. People think they need to make
money with their savings rather with their own business. So you end up
with dentists who are more traders than dentists. A dentist should
drill teeth and use whatever he does in the stock market for
entertainment.

People should have three sources of variation in
their income. The first one is their own business that they understand
rather well. Focus on that. The second one is their savings. Make sure
you preserve them. The third portion is the speculative portion:
Whatever you are willing to lose, you can invest in whatever you want.

In
the second category—preservation of value—you should have the
consciousness that there is something called inflation. You should
avoid some classes of investments that are very fragile.

What are are potential sources of fragility or danger that you're keeping an eye on?

The
massive one is government deficits. As an analogy: You often have
planes landing two hours late. In some cases, when you have volcanos,
you can land two or three weeks late. How often have you landed two
hours early? Never. It's the same with deficits. The errors tend to go
one way rather than the other. When I wrote The Black Swan,
I realized there was a huge bias in the way people estimate deficits
and make forecasts. Typically things costs more, which is chronic.
Governments that try to shoot for a surplus hardly ever reach it.

The
problem is getting runaway. It's becoming a pure Ponzi scheme. It's
very nonlinear: You need more and more debt just to stay where you are.
And what broke Madoff is going to break
governments. They need to find new suckers all the time. And
unfortunately the world has run out of suckers.

You're saying that what is supposed to be the safest place to invest, government debt, is in some ways the most dangerous?

Unless
you invest in your own home currency in very short-term Treasury bills.
Because governments can print more of their own currency, the risk
comes from a rise in interest rates rather than a government default.
When you have hyperinflation, deficits, or debt problems, with
short-term bills you can catch higher interest rates to compensate you
for the inflation or whatever return you've missed.

I
think some people get confused about Black Swans and think you're
saying that you can't predict what's going to happen. But you can see
some big consequential events coming down the road.

A
Black Swan for the turkey is not a Black Swan for the butcher. For
someone very naïve, some events may be Black Swans. For someone warned,
they're not going to be Black Swans if you know they can be possible
and you hedge against them.

Do you have any thoughts on the U.S. financial reform package?

I
don't like complicated regulation. I think we should not need financial
reform. What we need is definancialization. What we need to do is break
the financial community's grip on society. And you can do it very
easily by transformation of debt into equity. Banks have an interest in
building debt, but equity in society is vastly more stable than debt.

So
the problems have not been addressed. They're making something that was
complicated even more complicated. We need some fundamental reforms
rather than a very, very precise guideline on how you should behave.

What are you working on now?

My next [book] is about beliefs, mostly. How we are suckers and how to live in a world we don't understand.

 

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Thu, 07/29/2010 - 09:50 | 493929 Misean
Misean's picture

"is becoming"  heh!  Like the "current recovery"..."A little bit pregnant"...the "US becoming a police state"...

Thu, 07/29/2010 - 10:02 | 493954 MarketTruth
MarketTruth's picture

100% agree. And the 'becoming' as in the article's title is a joke per se (with all due respect) as Social Security and other line items are PURE PONZI schemes at this point. 

Thu, 07/29/2010 - 10:30 | 494016 Whizbang
Whizbang's picture

Well, the 'becoming' part refers to the fact that the federal government is now completely funded by debt issuance, the tax reciepts are just a way to remind the tax payer who works for who. The sad thing is that right now they can't stop. They need to keep expanding the money supply to keep the deflationary spiral we are in from turning into a crash. Very sad.

Thu, 07/29/2010 - 11:47 | 494189 MarketTruth
MarketTruth's picture

Agreed, yet as always with such schemes they eventually run out of other people's money. The USA is there now and so the Fed is just massively printing up new money from thin air. Since raising taxes would kill the economy plus never really pay 100% for the government debt, more printing continues unabated and at a higher rate/quantity.

Thu, 07/29/2010 - 14:44 | 494562 ElvisDog
ElvisDog's picture

There is no evidence that the "Fed is just massively printing up new money". What statistics are you looking at? When I look at M2, M3, total credit outstanding, all of these measures are falling. And for the most part the Fed does not "print money". What the Fed mostly does is issue buy and sell debt. They may be issuing a lot of new debt, but it's clear to me anyway that the new debt created is less than the old debt being destroyed.

Thu, 07/29/2010 - 14:53 | 494594 jd2iv987
jd2iv987's picture

DOUBT IT

Thu, 07/29/2010 - 20:29 | 495325 hedgeless_horseman
hedgeless_horseman's picture

Look at M3?  Hah!  Inconceivable, you twit!  The U.S. central bank no longer collects or publishes this most-inclusive measure of the growth of the U.S. money supply, although it will continue to publish narrower measures such as M1 and M2.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/FedKillsAKeyInflationGauge.aspx

Thu, 07/29/2010 - 12:01 | 494222 aldousd
aldousd's picture

the federal government is now completely funded by debt issuance, the tax reciepts are just a way to remind the tax payer who works for who.

Very good way to put it.

Thu, 07/29/2010 - 10:41 | 494039 bonddude
bonddude's picture

"Peter Orszag you're a facsist pig"

Hilarious

http://www.cnbc.com/id/15840232?video=1553868724&play=1

Thu, 07/29/2010 - 12:58 | 494334 BlackBeard
BlackBeard's picture

Heckler had a damn good voice too.

Thu, 07/29/2010 - 14:20 | 494500 Pladizow
Pladizow's picture

"The studious examination of the past in the greatest of detail does not teach you much about the mind of history; it only gives you the illusion of understanding it." - Nassim Taleb.

Thu, 07/29/2010 - 19:36 | 495262 mitack
mitack's picture

Hey Pladizow, would you mind changing your avatar ?

I like it so much on a subconscious level, that my eyes

stop on it for just 1 or 2(max) HFT trades time, but then

I have a hard time reading your comments past my erection...

 

 

Thu, 07/29/2010 - 09:51 | 493933 Oh regional Indian
Oh regional Indian's picture

It's not just a ponzi.

It's a ponzi so big that now it is devouvering itself. When there is no one left, it will eat it's own tail, like it is already doing.

And Naseem, the Black Swan came and went, just that the effects have been supressed. It's been a couple of years actually. Maybe you were asleep. It was quick!

But, now, any moment, thar she blows!!!

ORI

http://aadivaahan.wordpress.com

Thu, 07/29/2010 - 09:53 | 493939 Cognitive Dissonance
Cognitive Dissonance's picture

My next [book] is about beliefs, mostly. How we are suckers and how to live in a world we don't understand.

Let me make a few changes for you Nassim. There, that's better.

How we are willing suckers and how to live in denial of a world we don't want to understand.

Thu, 07/29/2010 - 12:14 | 494255 contrabandista13
contrabandista13's picture

"I HATE WHAT I FEAR AND I FEAR WHAT I DON'T UNDERSTAND!"


Early Cuyler...  

Squidbillies

Thu, 07/29/2010 - 09:54 | 493940 Gully Foyle
Gully Foyle's picture

Secretary of State: We were thinking, what could be a bigger threat than aliens invading from space?
General Panzer: Ooh boy! Scare the shit out of everyone. Even me, sir!
U.S. President: Jesus, is this the best you could come up with? What about, ya know, international terrorism?
General Panzer: Well, sir, we're not going to re-open missile factories just to fight some creeps running around in exploding rental cars, are we, sir?

Thu, 07/29/2010 - 10:32 | 494019 Whizbang
Whizbang's picture

Climate change is the 'new' war as far as population control and government waste go. It will be the motivation to strip people of their money, rob them of their standard of living, and give more power to the looters that control them.

Thu, 07/29/2010 - 10:00 | 493949 aheady
aheady's picture

I heard somebody the other day call it "Ponzilla" lol

Thu, 07/29/2010 - 10:04 | 493952 Übermensch
Übermensch's picture

Because governments can print more of their own currency

That is incorrect.

Thu, 07/29/2010 - 11:09 | 494098 greyghost
greyghost's picture

"UNITED STATES NOTES"

Thu, 07/29/2010 - 10:04 | 493959 trav7777
trav7777's picture

I landed a couple hours early once...was a flight from SFO to EWR, we surfed the jetstream.  Ground speed in excess of 700mph

Thu, 07/29/2010 - 12:36 | 494297 CrockettAlmanac.com
CrockettAlmanac.com's picture

I landed a couple hours early once...

 

Lots of folks have landed early simply by ending their trip in an ocean or on a mountainside rather than at the scheduled destination.

Thu, 07/29/2010 - 14:22 | 494507 New_Meat
New_Meat's picture

The Zen thing: how can you drop an egg 3 feet and have it not break? - Ned

Thu, 07/29/2010 - 21:08 | 495370 KevinB
KevinB's picture

Drop it from four feet.

Thu, 07/29/2010 - 10:04 | 493961 TooBearish
TooBearish's picture

Tell it to Billy Gross who claims 1Bil a month in in flows and probably controls 1trillion+ of govt debt.....

Thu, 07/29/2010 - 11:47 | 494188 NumberNone
NumberNone's picture

Are we at a point where Pimco controls so much debt they can start dictating government policy?  Is this why his bitch-boy Neel Trashkari made he statements about entitlements?

Tough shit grandma...Bill Gross says we gotta cut your check.  

Thu, 07/29/2010 - 10:09 | 493979 RicktheDick
RicktheDick's picture

I am a big fan of Nassim, but it is somewhat of a copout to suggest that people should rely on capital markets only for "entertainment value." The general public is beholden to Wall St in some way shape or form. Whether you extract the majority of your wealth from your own business or not, all businesses need to rely on financing from banks at some point. He downplays the inter-connections between entrepreneurship, investment, and financial speculation. I think the average person would love to not to have to rely on Wall St for a return on their savings, but your options are fairly scarce and limited. Whether it's from lack of expertise or barriers to entry, the investment vehicles that are available to him are not the norm for 99.9% of the population. Your only option to completely avoid systemic financial and geo-political market risk is to stuff your money in a mattress and pray that inflation is 0% into perpetuity... Good luck with that.    

Thu, 07/29/2010 - 10:38 | 494032 umop episdn
umop episdn's picture

I often get things wrong, especially about finances...but if you read this site long enough you will learn how to protect your savings without having to rely on Wall Street, Da Boyz, or The Fed...

Silver, female dogz!

Thu, 07/29/2010 - 10:50 | 494051 RicktheDick
RicktheDick's picture

Like? Enlighten me... Precious metals? Anything that can have short or long term volatile price swings does not constitute wealth preservation. Wealth preservation is a myth in this market. Don't get me wrong, I like gold and other metals over the long term, but don't kid yourself into thinking there isn't inherent risk involved in owning them.   

Thu, 07/29/2010 - 11:00 | 494079 SilverIsKing
SilverIsKing's picture

What are the risks in owning them other than someone taking your life to steal them from you?

Thu, 07/29/2010 - 11:07 | 494095 RicktheDick
RicktheDick's picture

Time... Do you think gold can't retrace 50% from where it is and stay there for an extended period of time? If it does, I'll be buying hand over fist don't get me wrong, but I can afford to wait for that snap back. Someone older, approaching retirement can't afford to have a substantial amount of his net worth wiped out and take solace in the fact that on a long enough time line he'll get it all back and then some... And that's to say nothing about what the federal government is capable of as far as legislation against private gold ownership. 

Thu, 07/29/2010 - 14:19 | 494497 Calculated_Risk
Calculated_Risk's picture

Ideally a 50% retracement would mean a shrink in the money supply. A shrink

in the money supply would mean the $ is more valuable. Which should buy you the same

goods and services as the +50%.

PMs are a buoy in a sea of fiat.

 

Thu, 07/29/2010 - 14:59 | 494609 RicktheDick
RicktheDick's picture

But that would imply a perfect correlation of 1 between the money supply and gold. That's not the case. 

Thu, 07/29/2010 - 17:31 | 495012 Calculated_Risk
Calculated_Risk's picture

Hence the word "ideally".

Strip out all the paper shorts, leverage, leases, leases on leases derived from leases...

trying to find the "real" price on anything controlled by the banksters

is like looking through a mud prism..

edit: Most gold bugs, including myself enjoy the fact there is no third party

risk of default, little downside risk, and a way to opt out of the bullshit theft

and games.

Thu, 07/29/2010 - 18:12 | 495133 RockyRacoon
RockyRacoon's picture

Rick, Rick, Rick, you are fiddling while Rome burns.  Get on board!

Thu, 07/29/2010 - 12:15 | 494256 Hansel
Hansel's picture

Anything that can have short or long term volatile price swings does not constitute wealth preservation.

You just described everything.  Good luck finding your holy grail of wealth preservation.

Thu, 07/29/2010 - 12:32 | 494289 RicktheDick
RicktheDick's picture

My point exactly!

Thu, 07/29/2010 - 14:08 | 494475 Hansel
Hansel's picture

I don't think you really have a point.  You think not playing the markets is a copout, gold is risky, and money in a matress, praying for no inflation, is as close to no risk as you can get.  I think you are trying to justify playing the markets, thinking you have no choice.

Thu, 07/29/2010 - 14:51 | 494556 RicktheDick
RicktheDick's picture

I am not trying to justify playing the markets, I am illustrating the point that no one is devoid of the implications of market speculation. The idea that we can completely disassociate ourselves from geo-political and macro-economic risk is a myth. You can lesson the severity of your exposure, but whether its direct or in-direct, the actions and policies of government and the financial markets play a roll in your life and financial well-being. To assume otherwise is to either mis-calculate or altogether ignore risk. So Nassim's point that if "your a dentist, just be a dentist" is a cop out. It's not that simple.    

Thu, 07/29/2010 - 14:23 | 494513 Sick Boy
Sick Boy's picture

+1 

There are no sure fire wealth preservation strategies, there is only impermanence.

Thu, 07/29/2010 - 15:01 | 494616 PhattyBuoy
PhattyBuoy's picture

What a fucking moron!

How many times do you have to get burned by these Wall St. cocksuckers?

Many should be in jail right now, and you want to give them more of your money ... sheeple led to the slaughter AGAIN!

 

Thu, 07/29/2010 - 15:10 | 494650 RicktheDick
RicktheDick's picture

Who the fuck are you talking to? Who's a moron? No one in this conversation is suggesting giving your money to Wall St, but if you had half a fuckin brain you would have realized that. Go back under your rock unless you have something coherent and credible to say.  

Thu, 07/29/2010 - 18:14 | 495136 RockyRacoon
RockyRacoon's picture

price swings

...has nothing to do with value.   Get with the program.

Thu, 07/29/2010 - 18:33 | 495161 reave the sheeple
reave the sheeple's picture

Like? Enlighten me... Precious metals? Anything that can have short or long term volatile price swings does not constitute wealth preservation. Wealth preservation is a myth in this market. Don't get me wrong, I like gold and other metals over the long term, but don't kid yourself into thinking there isn't inherent risk involved in owning them.  

Here's a bit of enlightenment: stop thinking in dollar terms, and try thinking in purchasing power terms.  Wealth preservation still exists, but if you insist on looking through dollar-tinted glasses, you are going to just see the volatility of dollars superimposed on everything else.  (hint: read Roy Jastram's The Golden Constant)

There are only two certainties in life, so saying that anything has inherent risk qualifies as a common sense faux pas.

Thu, 07/29/2010 - 10:48 | 494053 kaiserhoff
kaiserhoff's picture

Good points all around.  Nassim is an original thinker, but has limited experience in small business and hands on problems.  He doesn't seem to understand how and why businesses are formed and how much employment and productivity depends on confidence in the future.

For those who liked the Black Swan, his first book, Fooled by Randomness is a small masterpiece of philosophy and insight.  One of my all time favorites along with The Territorial Imperative, and Wealth of Nations.  Books everyone talks about but few read. 

 

Thu, 07/29/2010 - 11:01 | 494081 RicktheDick
RicktheDick's picture

+1

I know everyone loves to talk up "The Black Swan," but "Fooled by Randomness" is a much better book. 

Thu, 07/29/2010 - 11:33 | 494161 DoChenRollingBearing
DoChenRollingBearing's picture

Rick, both books are indeed fantastic.  The world is truly a very non-linear place.

Normal distributions are for suckers.

...

@ above poster comments on gold.  Yes, there are big price movements, but I think gold and PMs are good for more people than he thinks.  You can pass along your gold to your children, for example.  And buy as prices go down.

Of course, I am no expert, just ask Muir!

Thu, 07/29/2010 - 11:48 | 494192 RicktheDick
RicktheDick's picture

I agree with that. If you put it in the context of inter-generational transfer of wealth, gold is king, as is any other finite commodity. 

Thu, 07/29/2010 - 23:42 | 495531 Moneygrove
Moneygrove's picture

I am buying platinum too !!!!

Thu, 07/29/2010 - 13:55 | 494447 turds in the pu...
turds in the punchbowl's picture

CFG was an eminent douchebag

Thu, 07/29/2010 - 14:30 | 494526 New_Meat
New_Meat's picture

I've been asked over time to explain random variables and stochastics (not the T/A indicator type).  Taleb finally made it possible to explain with "Fooled." - Ned

Thu, 07/29/2010 - 10:48 | 494055 economicmorphine
economicmorphine's picture

 

I’ve found another way that doesn’t involve a mattress.  It’s basically what Taleb says:

 Pull capital to invest in business rather than financial instruments.

 Pull capital and use it to pay off debts.  

 Trade for fun.

This is the same thing people like Bill Bonner have been saying for years.  Hell, even WEB says he buys businesses, not stocks.  It’s not exactly a new way of thinking.

Based on the comments on this site, I don’t understand how most of us could play it any other way at this point.  That’s not to say it won’t be different down the road.  Could be.  As someone who’s read Taleb (and Mandlebrot), these guys have a way of changing deeply held thoughts.  Deep down, they’re random walkers......  Nothing pisses Wall Street off like a random walker.

 

Thu, 07/29/2010 - 10:59 | 494073 RicktheDick
RicktheDick's picture

I agree that you can mitigate some of the risk involved in the markets by owning businesses rather than financial instruments, but you still have to rely on the health of the broader economy any way you look at it. You might not own the debt and equity of some ill-fated company, but so long as enough people do it's going to create swings in your own business.   

Thu, 07/29/2010 - 11:42 | 494167 DoChenRollingBearing
DoChenRollingBearing's picture

Also, small businesses present their own risks.  My first two businesses did not work out, but we finally have one that has worked just fine:

A bearing import business in Peru.

Point is, it is indeed are hard to predict what is going to happen.  That is perhaps Taleb's (and Mandelbrot's) most important contributions to the thinking world.

Thu, 07/29/2010 - 18:23 | 495152 reave the sheeple
reave the sheeple's picture

There is zero cop-out in suggesting that amateurs should not expect much more than entertainment when competing against professionals.  It would be madness to expect a freeway commuter to race heads up against F1 drivers on F1 tracks, and yet in a less-than-zero sum (after fees, taxes, transaction costs, time, etc.) game, do you really think a dentist is going to outgame a professional capital market trader who has made the game his business?

The general public is beholden to Wall St in some way shape or form. Whether you extract the majority of your wealth from your own business or not, all businesses need to rely on financing from banks at some point. He downplays the inter-connections between entrepreneurship, investment, and financial speculation.

You may be right in recognizing the status quo, but this is the key quote: "We have this culture of financialization."  It doesn't have to be this way.  Businesses need NOT rely on fiancing from banks at some point-- this is not a law of nature we are talking about, but rather a de-facto recognition of the impact government malregulation and constantly debasing fiat currencies has on the cost of starting or maintaining businesses.  Example: http://www.oftwominds.com/blogaug09/small-biz08-09.html

 

Fri, 07/30/2010 - 07:44 | 495712 RicktheDick
RicktheDick's picture

Let me clarify because maybe I didn't articulate it as well as I should have. I am not in any way suggesting that retail investors participate in the market. They are destined to fail whether they try and do it themselves, or rely on some witless financial advisor or money manager. The market is set up for them to fail. What I am saying is that Nassim's thoughts are incomplete. The more people who take a pro-active stance in trying to understand the markets and the nuances that are involved, the sooner they'll realize how flawed it is and hopefully be inspired to take action and help facilitate change. We do have a "culture of financialization," but the problem isn't the mind set, it's with financial structure itself.            

Thu, 07/29/2010 - 10:25 | 494009 Bankster T Cubed
Bankster T Cubed's picture

it's a mistake to assume the "bid" in UST bid-to-cover ratios is made up of investors seeking real return

the bid is always what it must be in order for price/yield to be where they want it

the entire curve is as the fed funds rate

Thu, 07/29/2010 - 10:28 | 494012 The Franchise
The Franchise's picture

My analysis must be way off as I show the global financial system as having been a Ponzi Scheme for a long, long time.... not just "becoming" one. The whole concept is a Ponzi style concept.

Thu, 07/29/2010 - 10:41 | 494038 Bluntly Put
Bluntly Put's picture

No one lives in a vacuum. Accurate analysis or not, free market capitalism or not, Austrian School Economics or not, we are all Ponzi now. If Ponzi schemes fail when there are no suckers left, what happens when the whole enchillada is Ponzified?

Thu, 07/29/2010 - 10:33 | 494020 BennyBoy
BennyBoy's picture

Why not convert the banks debt into equity?

Sounds like a good solution if it works.

Obama did it to GM.

Thu, 07/29/2010 - 10:39 | 494033 JiangxiDad
JiangxiDad's picture

Your only option to completely avoid systemic financial and geo-political market risk is to stuff your money in a mattress and pray that inflation is 0% into perpetuity... Good luck with that.   

 

That's where some of us turn to physical gold, although it can be lumpy :)

Thu, 07/29/2010 - 11:41 | 494178 DoChenRollingBearing
DoChenRollingBearing's picture

You are kind of making a point that all us preservers of wealth who do that by buying gold.

That point is real diversification.  Most people do not own gold.  That is the "quick and easy" way to get some real diversification right away.

Thu, 07/29/2010 - 10:44 | 494046 Mongo
Mongo's picture

"And unfortunately the world has run out of suckers."

 

O'RLY? I am not sure I agree. There are about 6 billion suckers around the world right now!

Thu, 07/29/2010 - 12:06 | 494238 contrabandista13
contrabandista13's picture

The only element that's constant is the ratio of douche-bags, not suckers.  

 

Where's the bubble...?

Thu, 07/29/2010 - 14:22 | 494503 Calculated_Risk
Calculated_Risk's picture

Most of those 6 billion are poor as fuck.

Thu, 07/29/2010 - 15:31 | 494719 Temporalist
Temporalist's picture

But a lot of them are happy too.  Chasing wealth is a suckers game if you don't know how to be happy to begin with.  I'd rather be poor and happy and not playing along in a corrupt system than wealthy and unhappy corrupting everything in my sphere of influence.

Thu, 07/29/2010 - 19:51 | 495291 mitack
mitack's picture

Although I agree, I still have a hard time convincing myself

that disposing of everything (not that I have much) and

moving to a quiet corner of the world and living a humble life

is the right thing to do...

Thu, 07/29/2010 - 19:52 | 495288 mitack
mitack's picture

Thats a problem ? Will give them mortgages so they feel rich !

Its that fucking simple, dont you get it yet ?

 

Thu, 07/29/2010 - 10:48 | 494054 fromthedeepersouth
fromthedeepersouth's picture

A major disconnect that I see is what the social programs promise, which matches what people feel entitled to and expect, and what the government will ultimately be able to deliver.  There just isn't enough tax dollars out there to feed the social security, medicare and the other social program beasts, much less the military-industrial-oil-spy complex beast.  The reality of the government bankruptcy is slowly creeping into the mind of Joe Sixpack, and when the government finally fails to deliver on its promises, that's when the societal decline will accelerate.  How deep it goes will depend in large part on the quality of our leaders.  I don't see many Abe Lincoln's in the bunch.

Thu, 07/29/2010 - 12:45 | 494308 CrockettAlmanac.com
CrockettAlmanac.com's picture

I don't see many Abe Lincoln's in the bunch.

 

Thank God for small favors.

Thu, 07/29/2010 - 14:22 | 494505 akak
akak's picture

Agreed.  Lincoln's presidency was the single worst thing to ever happen to freedom in North America.  If I could go back in history and strangle that bastard in his cradle, I would do so with great glee and complete moral comfort.

Thu, 07/29/2010 - 14:33 | 494532 New_Meat
New_Meat's picture

I'll see your Abe and raise you a Wilson. - Ned

Thu, 07/29/2010 - 16:23 | 494871 DoChenRollingBearing
DoChenRollingBearing's picture

Yes Ned.

Woodrow Wilson.

Thu, 07/29/2010 - 23:45 | 495537 Moneygrove
Moneygrove's picture

Don`t forget G.W.Bush too !!!!!!!

Thu, 07/29/2010 - 14:01 | 494458 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

I have one gripe when it comes to an argument re "entitlements" is that SS is not, to my mind, an entitlement. Rather it was an investment, since you and I had the govt take that money and promise to take care of it and give the proceeds back when we needed it in our old age. Of course, back in the swingin' 80's the SS funds were raided and raided and raided. Now we have some rather diluted T-bills to show for it.

Same for unemployment-- you and your employer(s) put money in that kitty every pay period so that when you needed it, it would be there. It's not clear to me that UE has been depleted solely from huge demand or if there were any similar "unauthorized dips" into those accounts. 

There will be huge social unrest even from 1.5 million unemployed who are totally cut off. The reason we haven't had souplines yet is that the congress has figured out that it's safer to pay rather than risk some hungry ex-Army types getting even. It doesn't have to end up that way, but the f---tards in DC seem hellbent on choosing the most non-survival actions, almost like they planned it that way [heaven forbid].

Thu, 07/29/2010 - 14:50 | 494583 ElvisDog
ElvisDog's picture

The thing that confuses the "entitlement" issue with regards to SS is that the amount the average person can expect to be paid from the program is far in excess of what they paid in when they were working. So to call the money you paid a pure investment would assume that the government made a tremendous rate of return on your money. I think it wasn't an entitlement in its original form when people retired at 65 and died at 69. Nowadays when you might pull SS for 30 years it's not so clear.

Fri, 07/30/2010 - 00:17 | 495567 KevinB
KevinB's picture

Not entirely untrue, but the biggest problem with the investment issue and SS is inflation.  (2nd biggest: increasing lifespans)

Simple calc: invest $2,000/year, from 25 to 65, assume 6% return. Retire at 65, pull down 50,000/yr from the proceeds. You get to live to 73 before your cash runs out, which wasn't a bad lifespan 40 years ago. If you can make it on $30k/yr, you can live to 81, which, if you own your home, doesn't sound that unreasonable.

Now, you can quibble with a 6% return or working non-stop from 25 to 65, or any of the above, but it shows that it isn't impossible, and remember, I'm only talking about SS here, not what you might have invested on your own. If you just put $4k/yr (SS and your IRA) into your retirement, at even 3% return, you can fund twelve years of retirement.

But, throw in 2-3% of inflation in LOW inflation times, with a few years of "HIGH" inflation of 5-6% every decade, year after year, decade after decade, and you'll retire poor, even if you get a 6% return, and even if you put in more than $4k/year. Inflation is the killer of pensions.

Thu, 07/29/2010 - 14:51 | 494587 Thisson
Thisson's picture

Social security is neither an entitlement nor an investment, it is a "taking" of private property by the federal government for the purpose of redistributing wealth.

Thu, 07/29/2010 - 11:13 | 494115 Jimmy Bora
Jimmy Bora's picture

http://www.thedailybell.com/1250/UK-Stagflation-Now-It-Begins.html

 

Bank of England Governor Mervyn King has warned that high inflation will continue to erode earnings power through next year as the economy faces the threat of 'stagflation'.

 

GOT GOLD BITCHES?

Thu, 07/29/2010 - 11:32 | 494159 Justaman
Justaman's picture

Right on brother but suckers abound! 

I hope that the Orzwag (and Summers) heckler comes out with a full length sing-a-long version in the line of the Bahney Frank music video.   

 

 

 

 

Thu, 07/29/2010 - 11:44 | 494184 P-K4
P-K4's picture

Nassim writes, "Governments that try to shoot for a surplus hardly ever reach it."  Actually its more like, governments know they do not have sufficient revenue in the near term to contain the spending they plan to do, hence they start using future revenue streams like a hotel tax collected in years 2015 - 2025.

Nassim writes; "People should have three sources of variation in their income. The first one is their own business that they understand rather well. .. The second one is their savings. ... The third portion is the speculative portion." - He forgot government assistance, ergo he will not be eligible for a Nobel Peace Prize.

 

 

Thu, 07/29/2010 - 11:55 | 494210 twinsanity
twinsanity's picture

Jesus, the pure ignorance of how modern monetary systems work these days is baffling to read. The clowns who continue to believe:

a) their tax dollars fund anything

b) government debt funds anything

c) these debt to GDP ratios mean anything

is a sight to behold while they scratch their heads and wonder why we haven't hit Armageddon yet and why people still lap up Treasuries. You'll be doing so for a looooooong time. Might be time to change your paradigms and start understanding why the government under a fiat currency is not even remotely like a normal human being or a business. 

 

Thu, 07/29/2010 - 13:34 | 494396 IBelieveInMagic
IBelieveInMagic's picture

Please elaborate further why you think this can be extended for a long time...

Thu, 07/29/2010 - 14:06 | 494471 twinsanity
twinsanity's picture

Because it's happened before, is happening now(see Japan) and the world didn't stop. The scoreboard never runs out of points nor does the computer run out of digits. There will always be demand for sovereign debt because it's a risk free rate as long as the debt is denominated in the sovereign currency. The bond markets will never hold a country in that condition hostage at any point. Matter of fact they're acting like the SP500 pits in trying to get more govt debt. Denninger thought this game would end last year and is shocked it continues. It will always continue. The theoretical limit is when the govt pushes demand past the equilibirum point causing inflation, but with close to 15% unemployment, we're not even close to that happening. 

The problem isn't the spending, it's what it's being spent on. If the debate was focused around that, we'd be a hell of a lot further along than we are. All the talk of inflation or currency collapses is missing the mark by a WIDE margin. The austerity bullshit is even worse, those clowns are advocating collapsing aggregate demand even more which would destroy the economy. 

Thu, 07/29/2010 - 14:55 | 494597 Thisson
Thisson's picture

Your argument misses the point that collectively, the owners of the debt (which keeps growing) are getting an increasing share of the economy's actual production year after year.  At some point there is not enough production left to keep the non-debt owners above subsistence level, and they will revolt.

Thu, 07/29/2010 - 15:58 | 494805 twinsanity
twinsanity's picture

Errr, a good chunk of those 'owners' are US citizens. Either outright or thru pensions, 401k's etc. They're getting nothing more than credits in their bank accounts, that is it. We don't send today's production(cars, machines, etc) back in time to pay for yesterday's debt. 

Thu, 07/29/2010 - 14:55 | 494600 ElvisDog
ElvisDog's picture

I don't think your premise has been properly tested over time. Japan is a poor example because they had an enormous pool of savings that supported their deficit spending over the past 20 years. They have essentially been living off of their seed corn. Can they continue to do that forever? It's not necessarily a given. And England is a counter-example to your premise. They hit the wall a couple of months ago and had to pull back into austerity. Why couldn't England sell its debt to itself forever?

Thu, 07/29/2010 - 15:55 | 494797 twinsanity
twinsanity's picture

Even if they didn't have an enormous pool of savings, our banks, chinese banks, etc would have gladly lapped up Japanese govt bonds. They're lucky in that all of their "borrowing" is owed to their own citizens. We're different in that regard, but demand will always be there nonetheless. If not from our own banks and citizens, the Chinese, Japanese etc will gladly suck up that risk free rate. 

 

As for England, they capitulated to the deficit terrorists who predict gloom and doom. They did not need to resort to any austerity measure but when people are ignorant of how modern money works, they still think the gov't can become insolvent. By removing spending, they'll feel the pain a lot more than they did before. Look at 1997-98 Asia which tried the same thing and it backfired. 

Thu, 07/29/2010 - 12:31 | 494288 unemployed
unemployed's picture

 Tyler,  get a grip, no one bothers to borrow at the Fed Discount Window.   The banks have actually lent the Fed 1 Trillion dollars.   The banks are not borrowing from the Fed.  They used to lend to each other,  now they just deposit their cash at the Fed.

 The clue today is,  who bought the 3 Trillion in Treasuries in the last 2 years.

Thu, 07/29/2010 - 13:55 | 494446 hedgeless_horseman
hedgeless_horseman's picture

Nobody?

Thu, 07/29/2010 - 14:10 | 494484 twinsanity
twinsanity's picture

No one "bought them". The gov't spent by crediting bank reserve accounts. The banks want interest on those reserves and simply moved them to the savings accounts(i.e Treasuries). Just like you do on payday. 

Thu, 07/29/2010 - 16:06 | 494830 unemployed
unemployed's picture

 

   Banks and the FRB were not net buyers of much of that 3 Trillion.   Maybe off shore, Pimco, or some SIVs?   ( The FRB despite buying 35 percent of all Treasury bonds during their maturity extension program still only has about as much Treasuries as they did in 2007)

Thu, 07/29/2010 - 12:35 | 494294 proLiberty
proLiberty's picture

"And he who earns wages does so to put them into a bag with holes." Haggai 1:6

Thu, 07/29/2010 - 13:40 | 494416 Grand Supercycle
Grand Supercycle's picture

DOW daily chart posted at blog, showing two megaphone wedges . . .

http://stockmarket618.wordpress.com

Thu, 07/29/2010 - 15:40 | 494746 chunkylover42
chunkylover42's picture

doesn't the whole notion of black swan imply that few, if any, see it coming?  i hardly think that's the case with the looking debt/deficit problem.

Thu, 07/29/2010 - 16:28 | 494886 Cognitive Dissonance
Cognitive Dissonance's picture

It's not about seeing or not seeing something coming as much as it's about preparing for something that coming. Many people wish to believe that the looming debt/deficit problem will all work out. So they act like "it" isn't as bad as "it" is.

It's not about seeing something as much as assigning the wrong likelihood to it happening.

Thu, 07/29/2010 - 18:27 | 495154 RockyRacoon
RockyRacoon's picture

This question comes from someone who has not read the books.  This sort of person defines a term according to their own view and then applies that terminology to the question at hand -- and thereby comes to the wrong conclusion.  One cannot define the terms differently from those established by Taleb.  Defining terms is critical in setting out to find solutions.  I can argue with anyone's conclusions if I get to define my own terms.

Thu, 07/29/2010 - 18:26 | 495105 RockyRacoon
RockyRacoon's picture

Alas, Taleb is wrong: Ponzi or not, today's UST auction will likely once again come at a multi year high Bid To Cover as the suckers (especially those who recycle Fed discount window money) just refuse to go away.

Not wrong -- just different suckers. 

Who says one cannot sucker himself?  Happens all the time.


Thu, 07/29/2010 - 18:31 | 495156 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Had become a pure ponzi scheme.

But hey, English isn't his first language, copisce?

Thu, 07/29/2010 - 20:21 | 495316 Buck Johnson
Buck Johnson's picture

"And what broke Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers." 

 

I think this is so true, we have ran out of suckers.  As for the good buy of treasuries today, so what.  Somebody was going to buy and there was never going to be a failed auction.

Thu, 07/29/2010 - 22:04 | 495433 TideFighter
TideFighter's picture

Wealth Preservation?

401K Plunge (50% gone)

Gulf Area Home (50% or MORE gone)

Business Contracts (50% gone to Singapore)

PM's (manipulated)

I'm beginning to think that knowledge is the only asset that can't be manipulated.

Preservation of wealth may be teaching your kids (grandkids) a trade vs. sending them to Hawvad.

Thu, 07/29/2010 - 23:24 | 495520 jdrose1985
jdrose1985's picture

I'm beginning to think that knowledge is the only asset that can't be manipulated.

Much knowledge = much sorrow.

The books of proverbs and ecclesiastes are excellent places for u to start.

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