Tuesday, May 11, 2010

The problem is debt

May 10 (Bloomberg) -- Governments will only bring about an end to the credit crisis through the “blood, sweat and tears” of cutting the amount of public debt, “Black Swan” author Nassim Taleb said.

“The crisis came from debt and you don’t escape it with more debt,” Taleb said in an interview on Bloomberg Radio’s “Bloomberg Surveillance” today. “We’re in a situation where we had a patient who we discovered had cancer a year and a half ago and all we’ve been giving the patient is painkillers. The tumor is getting worse because we are transforming private debt into public debt and public debt is not manageable.”
Read the rest here.


The Anti-Gnostic said...

Nassim is correct. After a certain point, there is no more future left from which to borrow. The tax bases in the West are disappearing into a demographic black hole and Third and Fourth World immigrants are not going to service a debt they did not incur; nor, I would add, are Western millenials who will simply go off-grid and take black market jobs.

gdelassu said...

I can happily agree that the amount of debt that we are carrying is a bad thing. That said, I am hard pressed to agree with the headline of this piece or with Dr. Taleb that "the problem is debt." This credit crisis is hitting Spain quite hard, for instance, and yet Spain spent the last several years running budget surpluses and has a very low dept/GDP ratio right now (much lower than France or Germany, for instance). Iceland's debt/GDP ratio is even lower. Yet Spain & Iceland are both being hit very hard by the credit crisis while Germany is far less affected. Tackling debt is, indeed, a fine idea, but I think that it is misguided to suggest that doing so will have much effect one way or the other on the pain wrought by the recent credit crisis.