Taleb: Government Deficits Could Be the Next ‘Black Swan’


Taleb interview with Business Week:

It’s (government bonds) 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.

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.

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.

Business Week

Further solidification of the government debt bubble meme…

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