Nassim Taleb: The Next Black Swan Is The Gigantic Ponzi Scheme Of Government Debt

Nassim Taleb Starbucks

Photo: TBI

BusinessWeek has a new interview up with Nassim Taleb, and mostly it’s stuff you’ve probably heard him say before.He’s been haranguing governments about debt for a while, and continues with that here:

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 realised 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 [convicted financier Bernard] Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers.

Later he goes onto note that governments can print money, threatening hyperinflation, which may be a risk, though it’s definitely not Maoff-like. And after that, he points out how what are black swans for some, aren’t black swans for other, which is how a prediction like this can kind of count as a black swan, even though it’s been predicted.

Read the whole thing >

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