Black Swan' Author Taleb: Stimulus Made Economic Crisis Worse

You'd have to consider all those deals he passed up, as using his investment strategy, no? He may make 1-2 investments a year, out of maybe 200 investments available to him that he's analyzed. Thats still 200 investment decisions, not 1 or 2, which I'm assuming Taleb is using.

Wouldn't a thorough analysis consider four possible outcomes? The first event is the decision to invest (Y/N). The second event is whether their decision worked in their favor (+/-). (Y+, Y-, N+,N-) Y+ and N- are successful use of strategy. Y- and N+ are failed strategy. Same for Soros.

Example: Consider all of the investments that were passed up, that would have been terrible investments. That could be considered successful employment of an investment strategy. Buffett inherently (based on his style and risk profile) has a larger proportion of these.

For instance, I knew in late 2000 or early 2001 that there would be a housing boom, a housing bubble, and a banking crisis when it burst. I was a slacker so it wasn't until 2003-2004 that I started putting money behind this scenario and I profited on the way up and on the way down. (I was way too conservative in retrospect.)

I applied economic principles (and not my own genius, I just knew who to read) with real money and profited greatly as history unfolded as predicted.

The school of economics that told me about this upcomming bubble and predicted it using the same theories they have used for nearly 100 years is the Austrian School, and you can learn more about them at http://mises.org.

I know much of what is presented in mainstream media, the NYT and in many college courses seems complicated to the point of uselessness, and certainly we had Bernanke and Greenspan both claiming there was no housing bubble, even when it was well on its way in 2006-2007.

It is not that economics is so very complicated, it is that these people have a vested interest in pretending like economics is unpredictable. Their interest is in unlimited government spending, and so they constantly talk about deflation (never a real fear) to justify an inflationary policy which is also known as "letting the government spend whatever they wish to buy votes and gain power."

Of course you doubt that an "unfettered" free market economy can deliver what is promised because you've never seen one, and instead all your life you've seen government interventions result in disaster, and then said disaster being blamed on "free market principles". Like california, which banned the generation and sale of electricity in the state blaming "deregulation" for the energy crisis. Complete with well orchestrated ENRON show trial.

It is not ignorance that causes these suboptimal decisions, it is poltiicians putting one over on you.

FWIW, the Austrian Schools predictions go back many years, including accurately predicting the great depression, the fall of communism-- not just that it would fall, but how exactly it would fall and why-- 70 years in advance, etc.

I believe the ability to make predictions is the mark of a science.

I shouldn't care that most people buy the government nonsense that economics is "just too complicated"... because I am able to profit from the ability to make these predictions.

But I see so many lives destroyed by this, and needlessly, deliberately, by people who are either extremely ignorant, or dishonest, that it drives me up the wall. (And so I post here, knowing that I risk being downvoted into oblivion, not for failing to provide a wealth of information or a relevant perspective, but for not goosestepping along with the party line.)

As long as you believe it is impossible, you won't hold them accountable when they cause disaster.

I can predict the next two bubbles... they are already well under way. The bond market bubble is the next one to pop. I expect we'll have a crisis in some form before the end of 2012, though timing is hard to predict. The question is, how are they going to inflate their way out of that one-- because the prime candidate for the crisis is a failed bond auction. (The fed appears to be printing money and buying at its own treasury auctions already to keep them from failing... this is hidden, but the clues are there, and as a result, buyers are getting wary...who knows when they will be spooked.)

AT some point after that the next bubble- the bubble in the value of the US dollar, will burst. We'll have hyperinflation, most likely, unless our government takes as sharp turn towards responsibility.... but how long that takes to play out is unclear. What is clear is that we have benefited from exporting our inflation for the past 70+ years, under Bretton Woods and other agreements, and this was viable so long as we were a major exporter, and our government was solvent. But the soverign debt crisis sweeping europe right now is hitting countries whose (real) debt to GDP ratio is similar to ours or lower--- and our debt is growing at an unprecedented clip.

It is not hard to make predictions, even with some understanding of the timing.

Economics works. The problem is what is passed off as "economics" in popular culture is, most of the time, simply political ideology pretending to be economics.

The "stimulus" destroyed jobs, as all government spending does, and it made the economy worse.

Further, it is deficit spending that is killing us, as we are incurring unprecedented deficits.

Finally, borrowing is already becomming a problem with indications that the FED is printing money to participate in the auctions (using a major bank of convenience, of course) in order to keep auction rates low... this means that the treasury auctions have already started to fail. Further, the auctions for the last 2 years have shown a sharp shift towards shorter term notes, which means the amount that has to be rolled over at each auction is snowballing.

Wait, no, that's unfortunate, actually. Considering all the lives that have been destroyed as result.

But I've been thinking about a similar topic tonight, as I read columnists and reporters talking about how complex financial instruments are these days and how no one really understands them. Because the basics of them aren't all that complicated. CDOs, CDSs. ETFs, whatever. None of them are particularly complex concepts. Anyone with a CS degree has mastered concepts many times more complex. I accept that the details get tricky, but the details of lots of things get tricky, and a lot of people make solid livings being responsible in managing tricky concepts. None of these financial instruments are magic. I'm a curious layman, I get the gist of all of it.

And then there's people who claim their variable rate mortgage was too complicated to understand. Come now.

So I was thinking that it's really just in everyone's interest to pretend this stuff is hard to understand, that it's complicated, that it's magic.

Because then no one is responsible.

And then, as the saying goes, was I enlightened.

The housing bubble was easy to see. Everyone saw it. Many, perhaps most, ignored it. Because they wanted to. It let them gamble and not be responsible. From Joe Homebuyer to James J. Investmentbanker IV.

Some things are complicated, sovereign bonds and currencies among them. There are many reasons that nearly all the powers that exist want to keep that music going, and they have many tools at their disposal. I honestly don't know what will happen there, which is why I'm not sure I agree with your predictions in those areas. There's real magic at work there, and it's one of the few areas where make-believe becomes reality. The US has a very strong hold on centrality in the global economy, and I can't see how it's cleanly broken without severely damaging anyone who has the power to break it. That's the magic part.