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Matthew Conlan

Predictions for 2013

Tuesday, 08 January 2013 19:47

The complexities and risk built into the Modern World have increased its fragility and the likelihood of an unpredictable extreme event, or Black Swan.  In his masterful book of the same title, Nassim Taleb labels this age as one of “Extremistan” where severe, wild outcomes are the norm.  These events can be political, economic, or militaristic and like ripples on a pond, they spread across the globe with effects that can last for years.  The collapse of the hedge fund management firm Long Term Capital Management (LTCM) in 1998 due to the Russian Bond Crises and the attacks of 9-11 are two such events.  Both were largely beyond the imaginations (let alone predictably) of those who cared and the result of poor risk assessment.  The nature of this new reality means that predicting status quo over a reasonable time is less likely than the occurrence of an extreme event due to fragility built into the System.  In other words, one would perform better by making multiple calculated “extreme” predictions than forecasting “business as usual.”  While, the strong majority of these outliers will not fruition, a twenty to thirty percent rate would be a success.

Explanations for the results of the recent U.S. Presidential Elections abound: improper messaging on the part of the Romney ticket, a lack of inclusiveness on the part of the Republican Party, simple tribalism as a result of changing demographics, a belief in Santa Claus, or a combination thereof. A French philosopher once observed that “Nations get the Governments they deserve” and the history of the Western World since the end of the Second World War has been for Nations to elect Governments that allow people to enjoy lifestyles they are unwilling to fully work for. There have been, of course, exceptions, particularly in the U.S. which might have slowed the trends, but broadly speaking, these are mere bumps on the road which neither changed nor altered the greater trends towards increasing the size of the welfare state, and by extension, their corresponding Governments. The recent election represents the popular approval of the growth of entitlements, or as some have more colorfully labeled it: “Santa Claus”.

The unseen glue which holds the credit system and the Western World together is trust. We take it for granted and do not consider how it affects every aspect of our lives. What has traditionally separated the West (particularly the English-speaking World) from the Third World is the strength of contract law and the general faith that there will be enforcement of penalties meted out through judicial process to those who break their bond. This trust has been eroding more recently at a rate which is becoming more apparent even to the non-observer.

Sins of Proportion

Monday, 16 July 2012 13:43

There is a primal and inevitable force at play in the World Economy that is much larger than any politician or government can deal with effectively. I have often commented that regardless of who won the 2008 U.S. Presidential Election, this Primal Force would work itself out to its final conclusion and change the World’s economy and monetary system as we know it. The only difference is that the guy who won is taking us there much sooner than I thought possible. It is a concept so simple and easy that only an economist cannot understand it: debt.

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