We own you

The Big Picture selects several articles for us on US debt.

This one points out that to balance the US budget with borrowing, new bonds must be sold totalling 3 times the amount issued last year. Bearing in mind that there's less money around, and that people are getting nervous about America's credit rating, inflation and the value of the dollar on the international market, it seems very unlikely that this new debt auction would succeed; and if it did, it would have to be on the basis of higher interest rates, to factor-in the various increased risks.

Alternatively, it's time for the repo man - with a twist. Nassim Taleb and Mark Spitznagel suggest that banks could take part of homeowners' equity in exchange for lower interest rates. But if houses continue to decline in price? I bet the banks have thought of that, so if such a scheme were introduced, they'd want a bigger share than most homeowners would be willing to give them. My guess is that when houseowners realize that the market isn't going to turn soon, there'll be more voluntary bankruptcies and doorkeys in the post. That, plus rising and lengthening unemployment could set off the domino chain.

But returning to the Sprott analysis, note that late last year, 28% of US debt was foreign-owned. Look out for some form of debt-for-equity here - if not the sale of equities, then in the form of favours and concessions. He who pays the piper calls the tune.

The MSM take up the punishment theme

Nassim Taleb and Pablo Triana echo my call for condign punishment for the white-collar thieves.

Nassim Taleb on "Black Swans"

A very interesting article today in The Daily Reckoning Australia by Nassim Taleb, on asymmetric outcomes.

As the Daily Reckoning put it on May 14th, "...the importance of any event is equal to the likelihood TIMES the consequences." Most people underestimate the impact of rare events and so their risk calculations are skewed.

They may also miscalculate the probability of such an event occurring. I believe this was a factor in the 1986 Space Shuttle disaster. As Wikipedia puts it:

...NASA's organizational culture and decision-making processes had been a key contributing factor to the accident. NASA managers had known that [the] design of the [booster rockets] contained a potentially catastrophic flaw, but they failed to address it properly. They also ignored warnings from engineers about the dangers of launching on such a cold day and had failed to adequately report these technical concerns to their superiors.

We could use this a metaphor for the economic system and its technical risks, of which some of our bears continue to warn.