There are very few important things that can be foreseen with enough certainty to make $, a point made many times in many ways in this blog, and built into the nature of nature.
The exceptions, which occur frequently enough that Taleb-style investors can reliably get wealthy, is betting against people’s estimates of the future. Those are reliably too-optimistic, even in arenas such as finance and risk, the home of cold-eyed anti-sentimentalists.
When it comes to politics, the obvious bias to Pollyanna-optimistism is clear everywhere, the major problem is finding someone to take the other side of the bet. Michael Lewis’s Big Short covers the few groups in the US that saw the housing boom wreck the US financial system and their difficulties in finding a financial instrument that allowed them to profit. They eventually all did find CDSs and made, literally, $Bs from their insights.
Taleb-style investors ‘shorted Japan’ before Fukushima. Betting against regulatory agencies is a winning strategy, their estimates of risks are at least 1 order of magnitude too low for even anticipated problems, they miss many ‘unknown unknowns’, and actual operations are never close to projections. That is another aspect of the failure of analysis
Taleb-style investors were ecstatic when they found a financial vehicle to short Japan, I remember the articles saying so, tho they didn’t tell us what it was. That is a problem as the bets get bigger and the Status Quo’s filter denser. Shorting a country’s foreign policy requires a stable platform from which to execute the trades. When it is the foreign policy of Western Europe and the US against the world, the world’s financial platforms are at risks. Note how the meaning of terms used in the financial world change as the external circumstances change, ‘gold’, for example.
But there is absolutely no question on fundamentals and the gap between those fundamentals and our Status Quo’s apparent assessment of risks. the US of A is raising its debt limit again, this time by $2T and again tied to budgets for the next 2 years. The US of A can NEVER PAY THAT MONEY BACK. There is no scenario in which an operational US of A can generate sufficient taxes. You know that because the national debit is but a fraction of the country’s total public debt, but it alone amounts to $60,606.00 per person. The interest at 5% on that is $3030. If we as individuals had no other private or public debt, barely possible in this version of the US of A. In addition to those debts, completely impossible.
So at some point in the not-distant future, the world will grasp that point, and the United States of America will not be able to borrow money at any rate of interest. The alternatives for the government at that point are to print money or default on payments of interest and principle. The least-pain-tomorrow choice is printing $, so the US will follow every other country’s path, the USSR is the last example, of inflating pensions, social security, medicare, … obligations to the market value of nothing. It is already doing so, the largest purchaser of treasuries has been the Fed for some time, I believe, and the price of food is rising, very obviously, and has been for many years. Rents in our area are rising rapidly, people are moving out of our neighborhood because of the rents.
My wife has older Russian clients who have gone back to visit Russia over the last 20 years. Uniformly, they come back with the clothes on their back, having given away their other clothes, luggage, toiletries, and any other thing of value. Their friends are in great poverty and have sold everything to be able to eat. Without dachas and farmers markets, Russia would starve. Jobs are scarce, the older people have no savings and no incomes. Crime is rampant. The poverty is less in most E European countries, but older people have little saving and income.
My wife just finished her 2x per year charity box she sends to college friends. Clothes and minor luxuries, all very cheap here and very dear there. Someone puts together a shipping container to a major city and handles the distribution there. Her friends love us, in an uncertain world, that may be very useful for our family. There are many good places to live throughout Eastern Europe where things are very cheap, as cheap as Mexico.
From the certainty of the financial markets refusing to lend to a broke nation, it is certain that US foreign policy is about to change very radically, even more radically than the changes the Russians have caused this month. Military bases around the world will close. Military and other alliances will effectively end. Military and military contractors will lay off large numbers of people, 100s of 1000s. Military suppliers will fail, and another round of consolidation will ensue, another round of centralization of power in the country and world. Foreign aide will finally end, even for Israel. Israeli policy will be forced to peace, likely on rather dis-advantageous terms, given the levels of enmity it has engendered in its neighbors. The US will leave many former allies exposed to the wrath of their people, a factor that is no doubt responsible for the marked lack of cooperation from some of our client governments in the last year or so.
Osama Bin Ladin told us his strategy was to cause the US to go broke from military and security spending. Our intelligence agencies do not appear to have noticed the fact that we are doing so.
One explanation for the intelligence agency’s apparent lack of foresight could be their personal trading. Economic espionage focuses on $, and that is the focus needed for success. If they used such tips to gain support from other agencies, Congress, … the system could be stable until the platforms no longer function due to general collapse of financial and other systems dependent upon law and social order.
Let us all know if you find a stable platform.