Emperor has no clothes.. not even an underwear!

Last updated on Mar 9, 2009

Posted on Mar 9, 2009

All these years when the Emperor (Economy) was not wearing clothes, we were pretending as if it were in a designer outfit.  Well, according to Warren Buffett, it was worse!  The Emperor was not even wearing an underwear!  And we STILL missed the whole spectacle!

It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn’t have any underwear either

I was listening to NPR, where this was the discussion.  How come journalists, who had anticipated so many issues – major ones.. including the disaster like Katrina (the New Orleans paper ran a special for several days a few years before Katrina on exactly that scenario) – just completely missed such a big bear sitting right in everyone’s bedroom?

I guess there is no easy answer to this.  World basically lives in the averages.  No one is programmed to think in the margins.  Specially in margins which intersect.  And when margins become the highways of the day, all hell breaks loose!  Taleb’s Black Swan is about this phenomenon.  Unprecedented changes really happen in the margins.

However, its not that the current turmoil was merely a “Margin phenomenon” but that it was so likely given the basic economic theory.. and YET.. people were not ready to believe in the basics.  People – intellectuals – somehow delude themselves to believe that some undefined “sophistry” that we as humans have come to create in the world of existence is “self correcting” and self healing.  This time around, we are wrong.

Buffett gave the not so soothing verdict on the economy by saying that the “US Economy had fallen off a cliff” – a scenario that Obama has been warning against.  So, now that we are “midflight” off a cliff as the cold icy breeze is hitting us and we can see a hard rock at the bottom of the 10,000 ft drop, is there any way we can go back up?  Well, going back up or rebounding will lead to such high Inflation – that hasn’t been seen since 1970s!!

Think of the coming years – high unemployment, high inflation, low manufacturing capability in the country, low liquidity, social strife and more.  What would you do then?

Reference Links:

1. Buffett says economy fell off cliff

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