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gruffydd

Taleb - Monetary Policy Is Out Of Control - $40-70 Trillion Needs To Be Deleveraged Now, Or Else...

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http://www.dailyfinance.com/2009/07/03/tal...l-deleveraging/

there is excessive leverage in too many parts of the world; Taleb estimates that $40 trillion to $70 trillion globally needs to be deleveraged. The United States annual GDP is approximately $14 trillion. Until the financing problem is solved, it's going to be difficult to resume normal, healthy growth. "We're in the middle of the crash, so if I was going to forecast something, I know it's going to get worse, not better . . . You're going to have much less leverage in the system."

But Taleb is not convinced the process is fully underway. Rather than working off debts, he says the government is looking to inflate asset prices through stimulus plans. If asset prices were to undergo inflation, it would effectively lower relative debt levels, although people would not be any wealthier. Having monetary and fiscal policy pursuing this route is worrisome, because such actions often have unintended consequences. "Actually, they don't even know what they're doing. They're doing a lot of contradictory things . . . Monetary policy is something that's out of control."

...Looking at mortgages, Taleb said, "The government can very easily go to banks and start immediately having the conversion of debt to equity . . . to me, it's the only solution." He suggested that homeowners facing default give up a significant portion of ownership in the house to the bank, in exchange for a smaller stake and a payment they could afford, almost the exact opposite of a government program announced this week to lend underwater homeowners even more money to refinance their mortgages.

Edited by gruffydd

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http://chattahbox.com/business/2009/07/03/...suffer-a-crash/

(ChattahBox)—Messianic philosopher of the unknown, Nassim Taleb appeared recently on CNBC’s “Squawk Box,†warning the United States and other world governments to immediately start converting the massive debt choking the global economy into equity, or risk a full-blown financial crash.

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Theyre either incredibly smart or very stupid (the policy makers, that is)

What appears to us as an utter mess of fiscal and monetary policy may in fact be complete order. For all we know they may be treading a highly sucessful tightrope of scaring people into bonds for periods, alternating between periods of inflating values in other things.

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He suggested that homeowners facing default give up a significant portion of ownership in the house to the bank, in exchange for a smaller stake and a payment they could afford

How does this "smaller stake" work? Do they just get to own the kitchen?

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