In what was incredibly appropriate timing given the ‘shocktober’ market blowup, Bloomberg News invited “Black Swan” author Nassim Taleb to its set on Halloween for a discussion about the increasingly fragile market ecosystem in which we all reside, and the mounting risks that, Taleb believes, could soon ignite another financial crisis that will be even more severe than what we saw in 2008.
Taleb, dressed up as “black swan man”, wasted little time in explaining how the global economy is becoming increasingly vulnerable to a global debt crisis, how the global quantitative easing did nothing to fix the underlying problem of too much debt – instead it exacerbated it – and how the inevitable reckoning might play out in markets once the long-dreaded “inflection point” finally arrives.
Taleb began the interview by describing how the global aggregate debt burden has only climbed since the crisis. And while this debt is no longer dangerously concentrated in a single sector, like, say, the housing market, it doesn’t change the fact that the overall credit risk in the system has been amplified. And while central banks have for years managed to impose metastability in global markets, as they transition from a period of low interest rates back to “neutral”, the destructive forces that they long suppressed will surge back to the surface.
Just like he did in the run-up to the 2008 crash, Taleb isn’t trying to forecast the next crash; he’s only trying to explain how the global economy has become “more fragile today” than it was in 2007.
“You put novocaine on cancer, and what happens? The patient is going to look better, he’s going to feel better, but at some point, you pay a higher price.”
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