'Black Swan' Taleb foresees a crash, but not necessarily inflation

Nassim Nicholas Taleb doesn't want everyone to think he's predicting a bout of hyper-inflation for the U.S. economy, contrary to a much-discussed Wall Street Journal article earlier this week.

One of the bearish sages who have catapulted to renown as the economy teeters, the former derivatives trader and author of Fooled By Randomness and The Black Swan just thinks that Federal Reserve Chairman Ben Bernanke will probably miss whatever target he's aiming at with the myriad of programs created in the past year or so to help end the economy's credit crunch, he says.

Speaking at financial blogger and fund manager Barry Ritholtz's The Big Picture Conference in New York on Wednesday, Taleb described policymakers as the pilots of a plane trying to land on a runway wedged between a deep ocean of severe deflation and a mountain of rapidly rising prices. "They're overestimating the chance of hitting the runway and underestimating the chance of hitting the other two," he said.

Huge budget deficits and a massive expansion of the Fed's balance sheet -- all to pay for measures designed to jump start the economy and mend banks' finances -- are making some investors nervous about the possibility of a painful decline in the value of the dollar. The Journal article, which discussed the strategy of a hedge fund run by Mark Spitznagel, a long-time associate of Taleb's, cast the author as among them.

But Taleb sought to clarify his stance in a question-and-answer session at Ritholtz's conference. He'd just finished discussing his 10 guiding principals to creating a world less at the mercy of the devastating but highly unexpected events he outlined in The Black Swan, which he published in a Financial Times op-ed in April.

Taleb's talk was peppered with unkind comments about Bernanke. He even suggested that the Fed chief, his fellow regulators and other government officials and lawmakers may ultimately be responsible for his demise.

"People tell me they don't know where they're going to die," Taleb said, "but I know where I'm going to die -- in Washington from something popping in my brain."
Read Full Story

From Our Partners