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Oft Quoted Fattails
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Oft Quoted Fattails

  #1 (permalink)
Elite Member
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Oft Quoted Fattails

I found this in my reading today !
So global economies and their credit markets instead of delevering and contracting, continue to mildly expand. Yet there is bimodal fat-tailed risk in early 2012 that was seemingly invisible in 2008. Granted, the fat right tail of economic expansion and potentially higher inflation has existed for the 3+ year duration. QEs and 500 billion euro LTROs can do that. At the other tail, however, is the potential for “implosion” and actual delevering. To the extent that most sovereign debt is now viewed as “credit” in addition to “interest rate” risk, then its integration into private markets cannot be assured. If only Italian banks buy Italian bonds, then Italian yields are artificially supported – even at 7%. If so, then private bond markets and non-peripheral banks in particular may refuse to play ball the way ball has been played since 1971– purchasing government debt, repoing the paper at their respective central banks and using the proceeds to aid and assist private economic expansion. Instead, fearing default from their sovereign holdings, any overnight or term financing begins to accumulate in the safe haven vaults of the ECB, Bank of England (BOE) and Federal Reserve.”

-Bill Gross, Pimco

The guy is sure getting around !!

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  #2 (permalink)
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It is just the Tragedy of the Commons


Shamal View Post
I found this in my reading today !
So global economies and their credit markets instead of delevering and contracting, continue to mildly expand. Yet there is bimodal fat-tailed risk in early 2012 that was seemingly invisible in 2008. Granted, the fat right tail of economic expansion and potentially higher inflation has existed for the 3+ year duration. QEs and 500 billion euro LTROs can do that. At the other tail, however, is the potential for “implosion” and actual delevering. To the extent that most sovereign debt is now viewed as “credit” in addition to “interest rate” risk, then its integration into private markets cannot be assured. If only Italian banks buy Italian bonds, then Italian yields are artificially supported – even at 7%. If so, then private bond markets and non-peripheral banks in particular may refuse to play ball the way ball has been played since 1971– purchasing government debt, repoing the paper at their respective central banks and using the proceeds to aid and assist private economic expansion. Instead, fearing default from their sovereign holdings, any overnight or term financing begins to accumulate in the safe haven vaults of the ECB, Bank of England (BOE) and Federal Reserve.”

-Bill Gross, Pimco

The guy is sure getting around !!


LOL. I am always interested in fat tails.

What the guy probably wanted to say is that the current situation is pretty unstable. There is a shark on the left side and a monster on the right side.

The thing can best be understood by reading Hyman Minsky. Governments are now somewhere between speculative borrowing and Ponzi borrowing. In that state of affairs there is litte room for further manouevres. We will be paying for the stupidity of economic and political actors of the past.

Typically this leads to a stagnation, which will be interrupted from time to time by a minor or major crisis.

Not the end of capitalism, but the recognition that a Nash equilibrium is not pareto-efficient, as the commons are depleted.

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  #3 (permalink)
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Agreed !


I thought you might find it amusing ! Yes I agree the classic rock and the hard place scenario! Things feel quite solid and stable here in Canada, but we know it's a very different situation out there. Just got my hair cut from a recent Italian immigrant, not an optimistic future for the younger generation in that country.
Hope you and yours had a great holiday season,
All the best in the New Year. Thank you for all your excellent work and teaching on the indicators here.

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