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Wednesday, 19 August 2009

'Black Swan' Taleb says hyperinflation still a risk

In a piece in the Mail on Cameron's debt default warning at an event also attended by Nassim Taleb, it is reported
Mr Taleb also disagreed with Mr Cameron's green agenda when he said he did not believe global warming was caused by mankind's increasing use of carbon.

'I'm a hyper-conservative ecologically,' he said. 'I don't want to mess with Mother Nature. I don't believe that carbon thing is necessarily anthropogenic.'

The ecomonist and author also said there was a real danger of 'hyperinflation' across the world caused by government responses to the recession.

Now I like Taleb's approach - There's a good profile by Bryan Appleyard here, published in June last year before the bust - and his 'black swan' theory of an unexpected event that could come out of nowhere.

How to act if you think hyperinflation might happen? Well, pretty much as I have been, I suppose; hold gold, not savings, minimise borrowing, create an income budget surplus to cushion shocks, keep your food cupboards full and Tilley lamps in working order. What are the costs? Minimal. And at the first sign of an interest rate rise, I'll move hell to swap to a fixed rate mortgage.

I don't believe it's over yet, either.


Nick von Mises said...

Deflation vs inflation. It's the key investment / life decision of the next five years.

Personally, I believe a Japanese style deflation. But if you're going with hyperinflation then the real strategy should be increase borrowing (at fixed rates) and buy whatever hard assets you can, including housing.

Now, the fact housing is still falling hard..... hardly inflationary.

There's a good article [Roving Cavaliers of Credit] which explains the fundamental mistake most economists make in their theory of money (on the direction of causality in creating money supply), and how it totally changes how you consider inflation vs deflation

electro-kevin said...

You forgot to list a big knife and possibly a shot gun.

The days of Ealing Comedy Britain are well and truly gone.

Fausty said...

We have another belter in the offing - loans that were refinanced 3 to 4 years ago which coming due for renewal.

Most - if not all of them will have been arranged at a time when property prices were at their peak. Therefore, the loan amounts, if approaching 100%, will be greater than the value of the properties they financed.

How many lenders will be willing to renew?

Peter Schiff reckons the US economy is in a worse state now than it was 6 months ago.