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No More Business Cycles
One last comment that I picked up over the years. My friend Peter Boockvar actually crystallized this thought, but I think I’m going to make it part of my own liturgy: We no longer have business cycles; we have credit cycles. Central banks and governments, not to mention investment banks and investors, are all using credit in formerly unbelievable ways, and I am here to shout that the world is becoming one massive finger of instability.
Let’s go back to that 1987 mathematical experiment. The simple fact is there are green sand dots all over the world. They represent stability in the global system, which is allowing the fingers of instability to build up in a potentially deadlier way than we have ever seen before.
While we have had to deal with a virus-triggered recession, we are thankfully watching the economy begin to grow again. It is happening in ways that will make the world look different in 2022 than it did in 2019.
We take comfort from the stability we see around us. Corporate profits are up. We are greeted every day with some amazing new technological innovation that changes everything in some industry. Living standards keep rising.
And yet, Minsky tells us stability breeds instability. That sandpile experiment, as simple as it seems now, shows that the longer the stability lasts, with the fingers of instability connecting in hidden and unknown ways, the greater the avalanche will be.
I suggest you read at least the first half of Nassim Nicholas Taleb’s book, Antifragile. Here are three lessons that will show you what it means to be antifragile:
Fragile items break under stress; antifragile items get better from it.
In order for a system to be antifragile, most of its parts must be fragile.
Antifragile systems work because they build extra capacity when put under stress.
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