Monday, June 14, 2010

Ferguson, NNT & Krugman Miscellany

Niall Ferguson on Australian television from 5/31/10: He's worried, and he thinks Keynes can be right, but not when you start from a position of fiscal weakness. The debate continues. BTW, some economies, like China and India, as well as Australia and Canada, seem to be in pretty good shape.

NNT speaks with James Surowiecki of the New Yorker about the new edition of The Black Swan and current economics. Like Ferguson, NNT remains worried about the banks. Yikes! NNT, like Ferguson, is campaigning to bring down the level of debt, both public and private. Will it crash and burn a fragile economy, or is it the start of fiscal sobriety? The debate continues. NNT wants a more "robust" society, one that doesn't fail as easily as what we just experienced. Robustness means the ability to take shocks and survive. Robustness comes from redundancy, and redundancy is the opposite of debt. However, in the name of efficiency, we eliminate a great deal of robustness in society. NNT suggests:

  1. Low debt. It's like stopping smoking: the best way to reduce your risk exposure.
  2. End complex derivatives.
  3. Eliminate moral hazard (i.e., no bailouts).Don't give a drug addict more junk.
  4. Don't try to predict Black Swans, just make yourself immune to them (or reduce their impact).

Another NNT interview, this time on CNBC: Shorter than the above interview, but long enough to cover some important points. NNT gets his points across quickly:

  1. Fragility from too much debt.
  2. Untrustworthiness of forecasts, so create robustness.
  3. The 2008 crash was not a black swan; it was not as a surprise to all. It's a frame of reference situation. The turkey is surprised at Thanksgiving, but not the butcher.
  4. NNT fears inflation, even hyper-inflation. He fears a failed Treasury auction.
  5. NNT fears all currencies currently. He likes only short-term treasury bonds because of the fear of inflation.

Here is NNT @ NYU-POLY, where he teaches and does research. In this talk, he talks about iatrogenic injuries, "healer" caused injuries, in this situation it's applied to market advisers as opposed to just physicians.

"You are what you overcome."

"You may know all the answers, but the important thing to know is, what are the questions?" Reality demands the right questions.

Finally, a dose of Paul Krugman to keep the deficit hawks honest.

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