Debt Ceiling and the Neon Swan
Many call the debt ceiling situation going wrong a black swan event. That is totally misleading though. Black Swans are unpredictable events. US failing to raise the debt ceiling, “just because they always have raised it”, is not something “impossible” for the ones having done their homework, just like the Uprisings in the MENA region earlier this year. Maybe the debt ceiling is just another neon swan?
For Taleb’s Black Swan work, click here.
You’ve heard of black swans—events that are unthinkably rare, immensely important, and as unpredictable in advance as they are inevitable in hindsight. Now, with no one ruling out a default or downgrade of U.S. Treasury debt, investors face a new kind of threat: what we will call the neon swan, an event that is unthinkably rare, immensely important and blindingly obvious.
The politicians in Washington have a couple weeks to forestall a disaster that has begun to seem like a certainty. Investors everywhere are perfectly aware of the consequences if Congress and the Obama administration can’t strike a deal: The U.S. is likely to lose its privileged triple-A credit rating, and corporate bonds and stocks alike could plummet in response.
As Nassim Nicholas Taleb’s bestseller “The Black Swan” made clear, the human mind is poorly equipped to prepare us for rare, important and unpredictable events. But maybe our minds—and our markets—aren’t very well equipped to protect us against neon swans, either.
Continue the NYT article.