Another "Black Swan" Approaching

According to a forecast from the Economic Cycle Research Institute(ECRI) as reported on CNN Money the US economy is heading for another double dip recession. "It's either just begun, or it's right in front of us," said Lakshman Achuthan, the managing director of ECRI. "But at this point that's a detail. The critical news is there's no turning back. We are going to have a new recession."

This new crisis comes just three years after the global financial and economic crisis. As opposed to the 2008 crisis that started in the US with the collapse of Lehman Brothers, this time Europe is at the centre of the crisis- the Euro Zone in particular has rocked the financial markets because their sovereign debt crisis.

Nassim Nicholas Taleb, author of the best-selling book “The Black Swan,” said he’s more concerned about prospects for the U.S. than Europe because the country lacks awareness of its fiscal woes.

“The difference between Europe and the U.S. is the consciousness of the problem,” Taleb, a New York University professor, said at a news conference in Tokyo organized by Bank of America Corp. “There’s no consciousness in the U.S.” about the fiscal deficit, he said.

Global financial-market turmoil intensified this quarter as Europe’s sovereign debt crisis deepened and the U.S. economy showed signs of slowing. Standard & Poor’s cut the U.S.’s credit rating for the first time in August, criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget shortfalls.

Demonstrations have been taking place in Greece, Spain and Portugal against austerity measures and joblessness since early this year. Now the Wall Street of the US has also been hit by the waves of protest- the protesting issues include the 2008 bank bailouts, and high unemployment. Wall Street protesters carried posters which read “Protesters have rights defend 'Occupy Wall Street'” and chanted slogans including, "Stand up. Fight back," "We got sold out. Banks got bailed out" and "We are the 99 percent."

The term “Black Swan,” popularized by Mr. Taleb refers to a statement of impossibility, or to an event so unlikely that it defies comprehension.

In the past decade, there are quite a few examples of financial “Black Swan” events. Among them are the housing bubble and sub-prime mortgage crisis that derailed the banking system, the demise of Lehman Brothers in 2008, the BP oil spill and the Dow Jones flash crash, which had the Dow reeling with a 1000 point move on May 6, 2010.

Since events of these magnitudes are all previously unheard of in history, their repercussions ripple for years to come.


Now we need to heed to the warning that another Black Swan is unfolding.


As Nassim Nicholas Taleb,the author of The Black Swan wrote:

“We have never lived before under the threat of a global collapse. The financial ecology is swelling into gigantic, incestuous, bureaucratic banks — when one fails, they all fall. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur . . . I shiver at the thought.”

America's laissez-fare ideology of capitalism practised during the subprime crisis and the European state welfare model that has gone so wrong in Greece are under pressure to redefine and create a new social compact. Capitalism is the system that has created the extraordinary wealth and enabled the modern development of the western civilisation. But the free market has also created the biggest wealth gap between the rich and poor. If states have to intervene to bail out banks deemed too-big-to-fail and save countries from bankruptcy as in the case of Greece, then a new balance between the state and market is needed.

Q&A: Greek debt crisis. link
Late -2000s financial crisis. wikepedia