Nassim Taleb, “The Black Swan” author,shares what he fears will be the next “black swan” event for the U.S. economy.
we begin with a cnbc exclusive. a black swan is an event outside the realm of regular expectations. no mother person personifies the concept like telev. he has not appeared on cnbcsince 2010 to break his silence about what he fears will be a black swan event. thanks for inviting me after all these months.we made it sound like you’ve crawled into a hole. clearly you’ve been writing, speaking. mostly finishing my new work. but, you know, i came out of this — i watched the election andsomething wrong is going on. only one candidate ron paulseems to have grasped the issues and is offering the rightremedies for the central problems we facing. so i came out just to support — i’m not involved in politics. i’m a risk based person.but from my risk base vantage point i think one candidaterepresents the right policies when it comes to the big four, and that candidate is ron paul. what are the big four? the first one is deficits. of course, governments self-feeding bureaucracibureauc. second one is the fed. he’s going after the fed. the only one with the guts to do it. the third one is mill tarism. i like defense but not defense because it becomes self-feeding again. and the fourth one is that notion that america, that central notion that america is about is about resilience.and you don’t achieve that through bailouts. you need the economy to stay vital and you need a certain rate of failure. what is — what is fragile to break early not too late. and he represents these ideas. this is why i came out of my hiding to just express my support and going to be fund-raiser with some friends. but is the idea. although i’m not a libertarian and i’m not coming from a political standpoint, but on a risk-based view of the world. actually we have a sound bite of a recent interview or aconversation with ron paul, i think in which he sums up the kind of points you’re making. let’s take a quick look. here’s ron paul.you continue to do exactly what we’re doing now, it crashes the country. we’re not there yet. but it will come. you know, last month, two — a $200 billion deficit in one month. that used to be the entire budget are our country. that is unsustainable. and eventually there will be loss of confidence in the dollar, because that’s the last thing that’s holding us together, and to me it’s anillusion that the dollar can bail out the world. it’s an illusion that the dollar can bail out the world. his words on squawk box thismorning. so your opinion is he’s addressing structural problems and no one else is? exactly. he’s doing the chemotherapy. he can come up with a plan to cure the fundamental issues. rather than spending time on all these peripheral matters. and also he’s against the notion of novocaine, giving novocaine when you have a severe problem.you do a root canal, okay? that’s how you cure a problem. four years in this situation, we have now swelling governmentdeficits coming from an ill, you know, structured cure to theprivate problem. that’s not even moral. you put it in the framework of chemotherapy. chemotherapy may kill the cancerbut it will make you very sick. you lose your hair. it may make you sick but that’s the only choice you have. you have to start withgovernment budget that is in control. you start with that. it’s unconditional. you don’t gamble with future generations’ money and you don’t gamble with hyperinflation. you want the government first, like we’re doing with the greeks. we’re doing it to the greeks. we should do it to ourselves. you start with that.that’s 90% of the problem. and then the fed, yes. what side effects are you willing to live with as a result of those actions?we want jobs. we want healthy economy. i want to live in a country — i immigrated here. i didn’t go to soviet union when i came here 30-some years ago. i came here, lrpt? i want to live in a country that — and that’s something that has — that has this energy to rebuild things. and this is gone. okay from discourse.we have metastatic government, large government, civil servants having higher standards of living from other people,shielded from all the problems of the rest of the population. this is not the way you will have the competitiveness in the future that we had in the past. okay? and you need to do somethingdrastic about it. so long run you want jobs. you want safety. it’s like someone doesn’t gamble, okay, to feed his family. you don’t gamble, all right, to your family because you know losses are going to hurt them more than what benefits you may have gambling. right. long-term we want jobs, we want stability. we want a vital economy. short-term you’re willing to live with higher unemployment? there’s a problem of four years. short-term, spend four years from the money? at some point you’ve got to do something. you mean by addressing the structural problem. they’re not addressing structural problems. novocaine after novocaine. you’ve watched congress try, right? they’ve tried to have conversations about fiscal discipline. i mean, the whole thing is rotten. number one, the advisers around obama, okay you know, the ones who were part of the problem, okay. the advisers, they’re friends with the bachers, okay. the republicans don’t seem to be addressing the problem and i don’t trust them with deficits. the other republicans. i don’t trust them withdeficits. look what we’ve had under republican administration,including george bush, only. so ron paul is the one i think who is at least rallying intellectuals like me, who normally are completely independent, okay, who want the main problems to be addressed and who want the major cleanup. right. what kind of chances do you give him? i don’t think from the chances — i’m not going to — i don’t care. i’m supporting him regardless of the chances. whether he has 1% or 900% i’m supporting him. because we have no other solution but to come out of my — my line rather to come support him. i have no other solution.it’s my duty as a citizen, as a person who lives here and as ataxpayer who doesn’t want to be hoodwinked. right. in the long run by bureaucrats. what kind of solutions, before we let you go, do you think, being a realist and knowing how this country works, how the world works, what is feasible either now or after the election? well, i think that the support he’s getting among the youth who normally would voted obama, okay you’re starting to see, he has staying power and he’s there. and the support he’s getting, on the left, people who voted obama because they’re idealistic, because they’re idealistic, people who are on the republican side, and are disgusted with the other candidates’ lack of clear policy and willingness to take the personal risks to solve the problem, i think that there’s a big chance that we’ll have a major movement in this country, an independent party in the middle that would come up wi with — with — with a platform and address these issues. and before we let you go, if you were still trading and empirica would you still be betting, despite everything you’re arguing that the marketwould go higher or lower? i don’t own stocks, why? because i don’t trust treasury bonds. i happen to own stocks. i’d rather have a dividend than a coupon. so i own stocks. okay. i just own them as a fund management principle, and — but stocks are benefiting from fed moves even though you may say they’re misguided. well, i am afraid of hyperinflation, not of inflation.hyperinflation. i have no choice but to own stocks. stocks and some real estate. just to stay afloat? to preserve my — my staying power. my financial situation. and that will be your path,that will be your instrument? i also own some euros because in spite of the bad press they know the problems in europe andhere we’re not aware of it. so i hedge some euros. when is your book coming out? september, october, november. i don’t know before or after the election. when it’s done. okay? it’s actually on systems that like disorder and help to build a system, a robust system is a system that not just can sustain shocks but one that improves after every shock. and this is why i don’t likebailouts. i want the system — normally the system should gain after a crisis. just like after the forest, every small fire. we haven’t had that. so this is my theme now. you’ll come back? if you invite me, i’m here. very nice. nassim, thank you very much.thank you very much. good to see you.