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'Black Swan' Taleb Warns “Calm Before The Storm”
'Black Swan' Taleb Warns “Calm Before The Storm”
- Is the apparent calm of the West a signal of latent instability?
- Increasing symptoms of instability in West as proposed by Nassim Taleb
- Wider public and mainstream press believe “experts” have everything under control
- Black Swan approaches and we may be experiencing “the calm before the storm”
Western countries are increasingly displaying symptoms of instability as described by Nassim Taleb, the author of the The Black Swan, ever since the publication of an essay written with Gregory Treverton entitled “The Calm Before the Storm.”
The piece was published in the January/February edition of Foreign Affairs - the official magazine of the Council on Foreign Relations.
In their essay, Taleb and Treverton highlight five characteristics that could help identify states that - while appearing stable on the surface - may actually be quite fragile.
“Fragility”, they write, “is aversion to disorder”. Under this criterion they view Italy as a stable state.
The five characteristics they view as major factors in instability are:
- centralised decision making,
- lack of economic diversity
- high levels of debt and leverage
- absence of political variability
- lack of track record in surviving shocks
“Italy, paradoxically, shows no signs of fragility. It is effectively decentralized and has bounced back from perennial political crises. It also experiences a great deal of harmless political variability, cycling through 14 prime ministerial terms in the past 25 years.”
With regards to centralised decision making the article points to the autocratic Arab states which while appearing strong on the surface quickly succumbed to the “Arab Spring” uprisings before degenerating into chaos - albeit compounded by external influences.
“Although centralization reduces deviations from the norm, making things appear to run more smoothly, it magnifies the consequences of those deviations that do occur. It concentrates turmoil in fewer but more severe episodes, which are disproportionately more harmful than cumulative small variations.
In other words, centralization decreases local risks, such as provincial barons pocketing public funds, at the price of increasing systemic risks, such as disastrous national-level reforms.”
“On the other hand, Switzerland - often viewed as a model of stability -is composed of multiple smaller semi-autonomous states.”
Other states they look at are Middle Eastern, African and China.
Recent events would suggest that EU is increasingly centralising authority and decision making in Brussels. Indeed, Greek Prime Minister Alexis Tsipras recently stated that Greece’s creditors had made it clear that bailed-out countries had no right to self determination.
In terms of economic diversity, the authors warn of the risks associated with over-reliance on a particular sector such as tourism and on a single commodity or industry. The cite Botswana’s over-reliance on the diamond trade and Japan’s car manufacturing sector.
Over-reliance on any sector has obvious implications. “Specialization makes a state more vulnerable in the face of random events.”
An African country that is completely reliant on cocoa production, for example, is vulnerable to the predations of large confectionary corporations who can demand unreasonably low prices leading to hardship, poverty and civil unrest.
The U.S. is slightly vulnerable in this regard having relocated the bulk of its manufacturing sector overseas in recent years although it remains well diversified.
The entire western world is incredibly vulnerable to the third factor - over-indebtedness - which is described as “the single most critical source of fragility.”
Since the 2008 crisis - caused by excessive debt - global debt has increased by one third. In May the McKinsey Institute reported that total global debt was now around $199 trillion - $27,204 for every person alive today.
The U.S. is particularly vulnerable in this regard. It’s total Federal debt is over $18 trillion while its GDP is estimated to be $17.71 trillion. At the same time its unfunded liabilities are estimated to be a more than a staggering $100 trillion - a sure source of instability as these payments come due.
According to the authors, political variability contributes to stability “by responding to pressures in the body politic”. While western leaders like to promote the notion of political pluralism it is clear from the consistently low levels of participation of voters at election time that the people who live with the consequences of their decisions that the public do not generally see credible alternatives.
It becomes increasingly apparent that decisions are made by lobby groups and vested interests only to be rubber stamped by governments of varying persuasions.
How the fifth characteristic pertains to the western world is more difficult to identify.
What constitutes a major shock and what constitutes a survival of a shock? Can the Western world be said to have experienced a major shock in the post war period prior to the 2008 crisis? Can they be said to have survived that shock when in reality they appear to be on life-support? It is true that the powers that be have done a remarkable job at averting the day of reckoning but does that constitute a track record of surviving shocks?
The authors believe that exposure to any one of these factors is a symptom of instability. They add that exposure to multiple factors presents an exponential increase in risk.
The wider public and the press seem unjustifiably complacent at this time. It seems likely that the seemingly unending “recovery” is simply the calm before the storm.
The article in Foreign Affairs can be read here
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Yep all is well until the day it isn't ! Amazingly most people have no idea how powerful PRAVDA/MSM actually is. There is no real journalism in this country any longer that actually questions authority. It is all just a giant propaganda machine exactly the same as the Soviet state circa 1950s, 60s, 70s, They only let the masses see and hear or read what they want them to know and nothing else. They can create any narrartive or dialogue as they see fit, so they basically control the masses with lies. As well they can ignore or hide any bad act or event to protect the politicos or the corporatocracy we now live in here in USSA today !
Here is an example of the bullshit they put out, but there are many more ?
The term "undocumented worker" was created by PRAVDA/MSM so the politicos would not have to use the real term illegal alien. And of course people simply accept this as a fact including nearly all of congress, both blue and red ? when in fact it is just a false narrative created and repeated enough to control you and your tax dollars to be used against you in a myriad of ways everyday ! :) how special hey ? we all live in massive illusions and this is just one of many.
Our so-called health care system is also another of the illusions. Largely doctors don't heal or cure anybody , they act after the fact of years of bad habits and bad decisions and attempt to cover up maladies with drugs. Exactly the same as the so-called recovery that has fueled massive debt with absolutely no considertion for that debt. The drug being self delusion and feel good lies that keep the corporatocracy failing under the illusion all is well ! There are many more illusions to be sure and all are created as control mechanisms.
Keep calm, it's just the sound of water filling compartments below deck. We'll be fine.
I wonder if the shock is yen blows out in the sense since post ww2 recovery the system has seen EU/US/Japan/UK and Aus/Canada ect.. maintain a similar standard of living because within a range the developed worlds currency have remained relatively strong (thats the secret to the feelng of wealth relative to 3rd world.
But if we see a real blow out in one of the major currencies (Yen/USD/EUR or AUD/CAD) that shifts them backwards. possible due to QE ie excessive monetary expansion it will bring on the reality, ie that
the govt cant just spend and increase the money supply unlimited, which will bring an end to the entitlement society we have now..
then the domestic shock comes.. te Germans may actually be helping peripheral EU even if they dont know it because if they really experience the shockof a sharply weaker currency they will wish they had followed the German lead to balanced budget.
just thought
Seems right on
The economic escape velocity. The differance is the show had a happy ending.
Scotty we need more power.....I'm givin' her all she's got..she can't take much more captain!!!!!!
Since the mainstream press is populated by morons and yes men (and women, and whatever), I have to go with the black swan. At least the black swan knows wtf it's doing.
In the USA both Federal Public Employees/Officials and Private Executives have a strategy for Distributing Responsibility.
You could call this Decentralization of Power.
But the Fact is that Taleb should recognize Corruption in all it's forms and at least mention that he has looked into Cronyism and the Modern Strategies in all these countries.
Often Economists seem to live in a world where they are not allowed to point out how they have to work around government data which has been suppressed or is not collected... in order to create less debate and an illusion of stability.
Who is held responsible for the 2008 Financial Crisis either in Europe or in the USA??
Who is held responsible for Global War on Terror, Destruction of Iraq, Abuse of Afghanis, Millions of Refugees, Disease, Murder, Rape, Destruction of Businesses, Homes, Culture, Traditions...
There is no day of reckoning for Gerrymandering Voting Districts.
Who will answer for US Unfunded Pensions and out of control Pension Liability?
Maybe living in a world of Newspeak, a Dystopian 1984 world, or an Idiocracy of Illusions are the biggest "Black Swans"
If a black swan appears, its derrivative flock of in the red swans will pop out of a very big bubble. Think of the movie 'The Birds' by Alfred Hitchcock.
watch out, they are about to vote, if they vote no: it will be a Black swan event!
http://www.thepressproject.gr/details_en.php?aid=78984
Dicken's Mr. Micawber spoke of "pecuniary difficulties"; is today's plight of billions of humans below the prosperity margin any different?
The real gray swans are as plain as the nose on your face. But no one is talking seriously about them.
1. Areas are running out of water. When the aquifers run dry, human habitation becomes impossible. California and Illinois are on the brink.
2. The Oceans eco-systems are collapsing and ocean water levels are rising as the ice melts. Fish are a major source of livlihood for 100's of millions of people, and they are being depleted at an alarming rate. If water levels rise, 100's of millions of people will become homeless and place enormous stress (a gross understatement) on areas not under water.
3. The number of people reaching the point that they cannot earn a living wage (food and shelter) is growing fast. This will ultimately lead to social unrest and extreme violence. Greece is a tiny example of what is coming on a massive scale.
These huge gray swans make the political and financial problems seem trivial in comparison.
Good post.
It really sucks I have to agree with you entirely because..it's the fucking truth.
I say in another 5 years America will start to really 'crack' but I think it will continue to be papered over until Hilary gets into office.
In my youth, I worked on a rusty old tanker that was constantly breaking down. The Chief Engineer was this crusty old dog who when something broke would always say "dammit all, that never happened before."
Whatever color of bird you assign to the phenomenon, the notion that "tomorrow will be just like today" is so deeply embedded in the human psyche I doubt you'll ever root it out.
Ancient rural humor: " What did the farmer say when his horse died?"---answer--" Darn, she never did that before".
No guarantee that once turbulence enters the system that it will return to equilibrium.
I know a black swan when I never see it coming.
A joke you are making in your post, no?
Duh, decentralization creates stability ... everyone should know that as an axiom.
Unfortunately the globalists with the big-time agenda do not want decentralized stability. They want monolithic power and control by force. Or, is what they really want a "big fall" that will not be blamed on them, specifically?
Too late. They are taking the blame, one way or another.
America relies on magic banking, a rigged market casino and a fairy tale government. It can't go on but it cant be fixed, so when the tsunami comes nobody will be prepared and it will be a surprise to the sheep as they stampede off the cliff.....
Mixed metaphores are fun.
"It’s total Federal debt is over $18 trillion while its GDP is estimated to be $17.71 trillion."
That's called bankruptcy, kids. Liabilities greater than assets.
""It’s total Federal debt is over $18 trillion while its GDP is estimated to be $17.71 trillion." -- That's called bankruptcy, kids. Liabilities greater than assets. "
The Federal gov't only takes in about $2.4 Trillion a year, Runs $1T/yr budget deficits. Federal gov't owns about 7.5 times is income.
US GDP is fiction. back in 2009 US GDP was about $14.5 Trillion. Does anyone believe that the US GDP rose a staggering 22% since 2008? I think not! US Real GDP if you substract gov't spending and taxation is about $8 Trillion. Probably much less if Debt growth was subtracted (since Debt is tax on future production - ie spend now, pay later).
GDP is not about assets; it's about flow. Many people have more liabilities than assets, but as long as they have the income to pay off those liabilities, they are not bankrupt.
The power to tax is the only guarantee that we will pay our debt. Even then- we are not paying it. We are merely servicing interest while accumulating more debt. This is the phase that occurs just prior to bankruptcy- the debtor who manages to just pay his bills barely each month- who then craters over when an unexpected expense happens, job loss, or he becomes ill.
Make no mistake about it- Uncle Sugar is on his last legs. Splitting hairs over flow seems well, like splitting hairs.
It's even worse than that as GDP is a bogus measure than includes wasteful spending (guv and otherwise). A (slightly) better measure would be debt-to-tax-revenue.
Despot Obama has sold us out on MULTIPLE fronts.
Huge depopulation event comes.
But "they" want to be able to survive the depopulation event. So, they want it to be blamed on something supposedly completely out of their control. But obviously it will not be out of their control, otherwise they could not plan on it and make preparations.
Something big and bad will happen before year end 2015. I couldn't tell you what it is or even its exact nature, I don't know, but all signs and everything in my being tells me that something very dark, stormy, and significant is heading our way. And soon.
There's a lot of us with that nervous expectation. I have the feeling that it goes beyond financial, we lurch to the full-monty police state and a full fledged facist/nazi government...complete with the openly active gestapo, citizen reporting, etc.
Something IS brewing, there's a lot of people chatting it up across the websites.
"Something big and bad will happen before year end 2015"
Well The Movie "Jupiter Ascending" was a pretty big flop: Cost $175M, net sales $50M. Does that classify as big and bad for 2015? :)
I almost saw that movie on a plane ride back from China. The sound was screwed up, so I watched the movie, with virtually no sound. It certainly was not impressive that way. Probably served some other agenda... not sure what though.
In the Matrix, the Wachowskis concealed their occult understanding of the astral plane within the plot of a fictional dystopian future Earth. In Jupiter Ascending, their occult message is in-your-face obvious. Perhaps that is why the film received such negative reviews!
"According to the authors, political variability contributes to stability “by responding to pressures in the body politic”. While western leaders like to promote the notion of political pluralism it is clear from the consistently low levels of participation of voters at election time that the people who live with the consequences of their decisions that the public do not generally see credible alternatives.
It becomes increasingly apparent that decisions are made by lobby groups and vested interests only to be rubber stamped by governments of varying persuasions."
....and then, once in a great while someone like Trump pops up. While I totally disagree with his gross categorization of Mexican immigrants, I fully welcome his bashing of our elites in D.C. and their total disregard for the taxpayers and what the public wants. Here's hoping, too, that the secessionist movement in Texas gains strength.
With you all the way.
Trump is entertainment, a side-show act. If he were truly capable of stealing an election-altering percentage of third party votes -- like say, Perot's 18.9 percent in 1992 or 8.4 percent in 1996 -- then maybe his ludicrous presentations should be taken seriously. Of course, Ralph Nader's paltry 2.7 percent haul in 2000 was sufficient to derail Gore's hopes, so if Trump could keep on ass-clowning up a storm and take a few million Repub voters with him next November, it could seal the deal for Hillary's coronation.
At this point, however, I can't imagine Trump being legitimate enough to mount a Hillary-ensuring third party candidacy.
I need Trump to show me a couple graphs and tell me about a giant sucking sound he heard.
Until then I consider him to be a clown. We've already seen how the republicans treated Ron Paul.
"At this point, however, I can't imagine Trump being legitimate enough to mount a Hillary-ensuring third party candidacy."
Why would he? He is a Hilary Supporter!
http://dailycaller.com/2015/05/14/donald-trump-donated-at-least-100k-to-...
Seems to me Trump is running a false candidacy to distrupt the GOP from mounting a campaign against the DNC. I doubt Hilary will win. Too much baggage and likely has health issues too. She got cut in 2008 when her odds were much better.
Election 2016 is now an offical clown show with Trump running. The only think missing is the clown shoes. hes got the red nose, dyed hair, baggy suit, and horn (his loud mouth). Bozo for president 2016 should be his campaign slogan. On the flip side you have the Hilary "the wicked which from the west" You can practically see the flying monkeys all around her. Looking forward to the water bucket moment which she starts crying "I'm melting, I'm Melting!"
I can't see Hillary's health holding up through the campaign process.
And what is this "campaign process" of which you speak? The one in which she doesn't actually campaign?
Bingo! I predict a bow out on her part because of that.
There are no Black Swans, only strategic information kept under wraps to service the wrappers.
You guys got it all wrong; a black swan is a big, ugly, dark fricken bird
Not so ugly, just unexpected.
Very graceful bird however.
...and according to suami Satsitananda RamaKrishnaNanda, its a symbol of karma.
No no River Road - read Taleb. A true Black Swan comes 'out of the blue', by definition is unpredictable. In this sense, the housing meltdown, Lehman crisis etc. was really not a Black Swan.
A Black Swan is TransAsia Airways Flight 235 pilot cutting the wrong throttle uder stress, and 58 passengers and crew die.
Or German Wings Flight 9525 with a sucidal co-pilot in the cockpit alone.
(Yeah, I'm a pilot.)
A true Black Swan is not about something the PTB can control. It is beyond control or prediction or quantification.
I suggest you read Taleb:
https://en.wikipedia.org/wiki/The_Black_Swan_(2007_book)
I'm a big fan of Taleb - he emphasises that a black swan is "out of the blue" but only from the point of view of who is affected. E.g. Thanksgiving is not a "black swan" to the farmer, only to the turkey, who thought the farmer was fattening him up only because, well, the farmer was such a nice guy...
Are there black swans that NOBODY expects? Of course. Is this the only type of black swan? Of course not.
The most vicious black swans will likely be ones known to the rich and powerful - they will use them to their benefit at the expense of us poor turkeys.
Thank you. I was going to write the same thing, but you beat me to it.
If a tree falls in the woods....etc......
Unless you were John Paulson: His prominence and fortune were made in 2007 when he earned "almost $4 billion" personally and was transformed "from an obscure money manager into a financial legend"[6] by using credit default swaps to effectively bet against the U.S. subprime mortgage lending market. In 2011, Paulson earned "$4.9 billion" according to Business Insider.[7] As of March 2014, Forbes estimates his net worth at $13.5 billion.[
.....in 2004-5-6-7-8-9-10-11 and shorted the housing market, he was the one of the few, very very few who made money on that Black Swan and he was no insider to what the FED was going to do, and fortunately closed his positions b 4 the Market rose like a rocket in 2008 and continuing (with much much less celing).
For all our purposes there are far too many who have been awaiting the arrival another elegant Black bird, including Taleb, for it to be called one.
This is one article he should have kept to himself, I'll bet Taleb is not betting it all on a massive short.
"Or German Wings Flight 9525 with a sucidal co-pilot in the cockpit alone."
With that chaps history and his treatments, his actions were entirely predictable. Not a black swan, at least in my book.
"A true Black Swan comes 'out of the blue', by definition is unpredictable. In this sense, the housing meltdown, Lehman crisis etc. was really not a Black Swan."
Black swans are predictable, its just that no one wants to be believe they exist its staring them in the face. Prior to their (black swans) discovery in Australia, someone predicted they existed, and some one else dismissed it. Back in in the 19th century physicist Dmitri Mendeleev predicted the discovery of 8 elements by constructing a periodic table of elements and filling in the gaps. Back then his predictions where dismissed as BS. All 8 predicted elements were discovered.
Taleb black swan theory is not considering rare or not consider events that impose serious risks because people don't want to consider them. In Financial models about not considering potential risks because they were not considered or the risk was considered to be too small. Most of time bad financial deals are made because the people making them, want to collect big commissions and leave the aftermath for someone else to deal with.
As far as German Wings, The FAA has consider this a risk, as US commercial aircraft cockpits must be occupied by two or more personnel at all times. The EU simply didn't consider it as a risk under the false assumption no pilots are irrational because they are "pilots" (Doh!) . In the case of Flight 235, human error is always consider a risk. The real issue is that the Airport that Flight 235 took off from, leaves no margin of error. Had the same plane with the same problem and the same pilots take off from different airport with no building or obstructions in the flight path, the outcome would have been very different.