[deMolay]

Black Swan Author This is Greatest Crisis in History:
Could this be the Great Die Off rather than the Great Depression starting? http://www.pbs.org/newshour/video/modul ... 2008&seg=5

[hillguy57]

I watched the interview on PBS. Talk about your somber attitude.
If he even is right on half of what he thinks could happen, we're in for a long long downturn.

[WyoDutch]

But John McCain says we're winning in Iraq and will bring the troops home in "victory".

[Snowrunner]

But John McCain says we're winning in Iraq and will bring the troops home in "victory".

You're on the wrong page there.

[Eli]

Yeah, this is what is coming.

The way the world used to work is about to stop.

Go long guns and Ammo and canned goods. Look at the extraordinary steps taken already. They cannot stop the blow up of 64 trillion in CDS market, the world is over leveraged.

[Revi]

I watched another video about the downturn in state revenues and the fact that medicaid providers aren't being reimbursed.

We are talking about a really scary situation.

In our state they are going to cut 100 million from education next year.

What has happened to this money? It's simply disappearing.

I never expected the beginning of the troubles to look quite like this.

It's looking like a deflationary depression, with a lot more people.

[emeraldg40]

I watched another video about the downturn in state revenues and the fact that medicaid providers aren't being reimbursed.
We are talking about a really scary situation. In our state they are going to cut 100 million from education next year.
What has happened to this money? It's simply disappearing. I never expected the beginning of the troubles to look quite like this.
It's looking like a deflationary depression, with a lot more people.

Looks like it finally hit here. Granted it is only 50 people out of 18,000 but Ive never been given a letter expalining lay-offs and Ive been there 15 years. Glad I was not surprised since I read here regularly. Now if I can get my family to see the signs....

[dinopello]

I like how he understands about over-optimization. It comes at the expense of robustness.

[frankthetank]

Now that is spooky. A person doesn't need ghosts when you can read about this.

[Eli]

Dino can you explain what he meant by that so that a 10th grader could understand it?

Not for myself of course I totally see what he meant by that, but I would like to be able to explain it to others who might not be as smrt as me.

[nobodypanic]

Dino can you explain what he meant by that so that a 10th grader could understand it?

Not for myself of course I totally see what he meant by that, but I would like to be able to explain it to others who might not be as smrt as me.

let me try.

the economic system is so complex that small perturbations can lead to very large effects, and because of this, it is really unpredictable: we don't really understand it, and we don't know what it's going to do.

moreover, the system is over-optimized: it has sacrificed redundancy and, hence, robustness in the name of efficiency by way of inter-dependence, allowing us to go further and further out on a limb. however, in doing so, the system has made itself extremely fragile and vulnerable, and its interdependence means that the failure of any one portion of it presents a risk to the system as a whole, due in part to the loss of redundancy.

[eastbay]

Dino can you explain what he meant by that so that a 10th grader could understand it?
Not for myself of course I totally see what he meant by that, but I would like to be able to explain it to others who might not be as smrt as me.

let me try.
the economic system is so complex that small perturbations can lead to very large effects, and because of this, it is really unpredictable: we don't really understand it, and we don't know what it's going to do.
moreover, the system is over-optimized: it has sacrificed redundancy and, hence, robustness in the name of efficiency by way of inter-dependence, allowing us to go further and further out on a limb. however, in doing so, the system has made itself extremely fragile and vulnerable, and its interdependence means that the failure of any one portion of it presents a risk to the system as a whole, due in part to the loss of redundancy.

Well, I watched and listened the full 10 minutes.

I still don't understand what we can expect when this hits. I heard some talk at the end of grocery stores having trouble with financing deliveries of food ... but won't ensuring financing for such basic needs be the highest priority for the government? I mean, if they'll bail out AIG, F & F, assorted banks and all the rest, won't we see cash flow to Safeway and Costco too? The precedent of raining cash has already been set, so it's only a small reach to see this happen with essentials too.

So, with that issue at least temporarily solved, what's the next crisis we can expect? When do the lights go out? The natgas to our home too? How about teacher and cop salaries, for example. When can we expect them to cease?

See what I mean? I'm trying to get my mind wrapped around what exactly to expect here as the coming days, weeks, and months tick by.

Don't get me wrong here, I fully expect very hard times ahead ... inflation caused by devalued currency, but I was more concerned with what we can expect from a practical perspective.

[crabnebulous]

After Israel does its thing with Iran, oil goes up stocks go down.

[deMolay]

It looks like the effects of momoculture farming, in my minds eye. You plant only one species of corn for example all over the world. A disease arrives. Because you have no diversity left all the corn in the world gets wiped out. You starve.

[deMolay]

A quote from his homepage. "My classical metaphor: A Turkey is fed for a 1000 days—every days confirms to its statistical department that the human race cares about its welfare "with increased statistical significance". On the 1001st day, the turkey has a surprise."

[dinopello]

Dino can you explain what he meant by that so that a 10th grader could understand it?
Not for myself of course I totally see what he meant by that, but I would like to be able to explain it to others who might not be as smrt as me.

let me try.
the economic system is so complex that small perturbations can lead to very large effects, and because of this, it is really unpredictable: we don't really understand it, and we don't know what it's going to do.
moreover, the system is over-optimized: it has sacrificed redundancy and, hence, robustness in the name of efficiency by way of inter-dependence, allowing us to go further and further out on a limb. however, in doing so, the system has made itself extremely fragile and vulnerable, and its interdependence means that the failure of any one portion of it presents a risk to the system as a whole, due in part to the loss of redundancy.

I would have a different take. I don't really like the bringing in of 'complexity'. An over-optimized system almost by definition is fairly simplistic because we have been able to understand it and model it enough to optimize it. The author in the video actually did mention complexity, but I don't think in relation to over-optimization, but this is a minor point.
He used the example of the banks. I don't know much about banking, but I'll try and give the example. The banking system used to have 10's or 100's of thousands of small little local bank each performing transactions with 10's of thousands of small businesses and individuals using their own rules, some making smart decisions and some less smart. These banks interacted with each other and with larger banks and governments in multiple hierarchys. If one were to try and model and control this system as a whole it would be very difficult or intractable. Although the specific rules for interacting might be simple, the sheer number of permutations make it system-wide complex but also more robust because if individual banks fail the overall system can self-heal, adapt, wor work around. There is not a single point of failure.

It is not optimal though. If you reduce the number of banks (consolidation), flatten the hierarchy you make many less transactions (and each transaction has a cost/interest/paperwork etc) and the system becomes more optimal. More of the capital goes into end product rather than interest or paperwork to maintain the system. There are side effects such as bank products (loans) becoming more standardized (more similar, less diversity)and larger on average. Maybe it becomes more complex in some ways as well. Banking interacting with investment systems etc. Anyway, this system is less robust because if there are say only 5 banks, a single failure brings down 20% of the system and even a short cascade can take the whole mother down.

I probably didn't explain that too well.

[Ferretlover]

IOW, it doesn't really matter how many "Atta boy"s you earn, it only takes one "Aw, sh*t" to take you back to zero.

[wisconsin_cur]

IOW, it doesn't really matter how many "Atta boy"s you earn, it only takes one "Aw, sh*t" to take you back to zero.

Mama Cur said it this way, "Yeah that will work for you. You know, until it doesn't."

[Delphis]

IMHO, it seems the real unknown Nisser was getting at is the effect on the social infrastructure, well if you can call it that. The world used to be based largely on the notion that if you don't have the cash, you can't buy it. With the advent of "credit" becoming available to the masses, e.g. small business owners, we entered a world where very few mom and pops, medium sized operations, and certainly a miniscule amount of large corporations owned their inventories. Car dealerships floor their vehicles, parts inventory and pay large debt service not only on their real estate but the actual franchise. The same is true for every, Domino's, Mc Donalds, Thirty-One Flavors etc. Most of those lucky enough to buy the franchise long ago have ever-leveraged themseleves and now own multiple locations and operate on a very small margin for error. Without the backstop of a new line of credit to make it through the trough(s)...they will fail. I know a few of you will say that not everyone operates that way and I concede. But in a world where constant expansion of everything we need was accepted as the "only" possibility, it seems we may very well have just set foot on a unmapped continent and are staring right down the beak of a Black Swan...

[evilgenius]

Delphis is onto something very important. It only takes a small percentage of over-leveraged small business owners (the kind that aren't likely to get bailed out) to ruin any local economy. Imagine how many more unemployed a 2% failure rate would bring.

Then extrapolate their being chronically unemployed, not spending much into the local economy, for well past a year. How many more small businesses would fail then? How many would cut employees or ask for wage concessions? I think it is going to turn out to be a blessing and a curse that the minimum wage was raised, just in time for the deflationary spiral.