Nassim Nicholas Taleb, author of “The Black Swan,” said he’s concerned budget deficits in the U.S. are spiraling out of control and may now represent a bigger problem than in countries such as Greece.
“The U.S. is probably the worst of all,” Taleb told Canada’s BNN television network in an interview today. “They are addicted to debt. We have an administration that, unlike the European administrations, is not aware of the risks of mounting deficits, of the addiction to public deficits and to big government.”
Taleb told the cable network, “People are complaining about Greece, but Greece has the IMF putting some discipline in their system. Who can discipline the U.S. government?”
Greece this year has imposed a series of austerity measures, including wage and pension cuts and higher sales taxes, in exchange for a 110 billion-euro ($148 billion) rescue from the European Union and International Monetary Fund. U.S. President Barack Obama inherited what the National Bureau of Economic Research said this week was the deepest U.S. recession since the Great Depression. The government’s outstanding debt is about $13.5 trillion, according to Treasury figures.
Risks to the global financial system are much larger than before the September 2008 bankruptcy of Lehman Brothers Holdings Inc., Taleb said.
‘Making Things Worse’
“People still don’t understand why we had the crisis and they don’t realize that we are making things worse,” he said. “We still have the same level of debt but we are transforming private debt into public debt. We are socializing these risks, and the system has fewer people employed. So we have a lot more risks than we did in 2007.”
Taleb, in Montreal today to give a speech to a group of business people, said Canada’s fiscal situation makes the country a safer investment than its southern neighbor.
Canada has the lowest ratio of net debt to gross domestic product among the Group of Seven industrialized countries and will keep that distinction until at least 2014, the finance department said in its March budget documents. Canada’s ratio, 24 percent in 2007, will rise to about 30 percent by 2014. The U.S. ratio, now above 40 percent, will top 80 percent in four years, the department said, citing IMF data.
“I am extremely bearish on the U.S.,” he said. “I am more bullish on Canada. Canada is much more robust than the U.S. You guys have much less debt, much more manageable risks.”
Taleb wrote the 2007 best-seller “The Black Swan: The Impact of the Highly Improbable,” which argues that history is littered with rare, high-impact events. The black-swan theory stems from the ancient misconception that all swans were white.
As the founder of New York-based Empirica LLC, a hedge-fund firm he ran for six years before closing it in 2004, Taleb built a strategy based on options trading to protect investors from market declines while profiting from rallies. He now advises Universa Investments LP, a Santa Monica, California-based fund that bets on extreme market moves.