Black Swan Event Risks, 2011
January 18, 2011, Submitted by: Ken Tweet
What is a black swan event?
“The disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology”
What black swan event could possibly interrupt 2011?
In no particular order,
Inflation
In the U.S., the Federal Reserve (a private bank organization) has loaned to the U.S government (and other world entities) trillions of dollars in an attempt to keep the U.S. Dollar afloat. The U.S. is essentially bankrupt, and its only hope is to devalue the existing currency (the dollar), or in another word, inflation.
You can bet your bottom dollar that the U.S. government prefers inflation (they hope for ‘controlled’ inflation) for any chance to ease the real cost of today’s federal debt and deficit. This will surely be our future reality.
Food Price Shock
The United Nation’s Food and Agricultural Organization is warning of ‘food price shock’. Rising food prices have provoked riots in Algeria and elsewhere, while massive world food crops have recently failed due to extreme weather events in Russia, India, Pakistan, Australia, Brazil, and beyond. Food prices will also be affected by currency inflation and rising energy costs. The trifecta, weather – inflation – energy costs, may very well bring on Food Price Shock in 2011.
Oil Price Shock
Faith Birol of the International Energy Agency is warning “The stability of the global economy is under threat due to oil prices entering a “dangerous zone”. Common sense tells us that as oil prices rise, so do the costs of nearly every other thing in our modern lives. The ripple effects are more severe than most people realize.
La Nina
Weather effects on food prices or shortages. La Nina, the cooling of the equatorial Pacific ocean surface waters, is the strongest it has been in quite some time, and will surely affect the weather well into 2011 (generally colder than normal with localized effects out of the normal – affecting food crops and way-of-life)
Home prices
More homeowners are ‘under water’. Foreclosures could reach a tipping point. Although the Fed is doing everything it can to prop up banks by purchasing their ‘bad’ assets (by the way – it’s you and I that are purchasing these bad assets – not them – every Fed loaned dollar to the U.S. has interest attached), the risk is very real that home prices could continue to fall despite the trillions of dollars pumped in. Foreclosures during 2011 are estimated to hit 1.2 million, topping last year’s record high.
Europe’s debt crisis
Europe’s sovereign debt crisis could spin out of control. The U.S. itself is within the ‘house of cards’ at risk of toppling over… Portugal, Italy, Greece, Spain, etc… who’s next? The powers-that-be are running out of ammunition in their fight to keep the phony system afloat.
The Middle East
Existing tensions could explode into disaster. Israel, Iran, and nearly all middle east countries are intertwined in tensions of war while the super-power puppet masters near the end of this chess game. The ongoing social unrest there is like a tinder box ready to ignite.
N. Korea
Kim Jong il, although seemingly under the control of puppet-master China, is capable of selling their nuclear weaponry to others, and could potentially start a chain reaction WWIII if launching any of their own nukes, as they have threatened to do upon S. Korea.
City/County/State Defaults
Many US states, cities and counties are running huge financial deficits. What will happen if many of these begin to topple over or be forced to cut deeply… those who have been financially benefiting will feel the pain – social unrest.
Geophysical event
A massive earthquake (e.g. Japan), or very large volcanic eruption (VEI-6 or greater), or a massive solar flare ‘Carrington event’, could greatly effect our modern way of life as we know it.
WWIII
As crazy as it may sound, it is not all that far fetched to imagine a new world war, given that so many nations are under financial and social stress at this time. Many believe that major wars often follow periods of financial depression.
How can we protect ourselves from these black swan event risks?
Minimize your risks on Wall Street (get out?)
Buy commodities that hold value through inflation (physical Gold, Silver, …)
Buy tangible things that are and will be useful to you in the future
Keep some cash on hand to get you through a short-term disaster
Buy food supplies now (beat inflation)
Become more self-reliant (reduce your debt to ‘the system’)
Plant a small garden (or as big as you dare)
Own physical assets without debt (land, assets of practical value)
Learn practical skills
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Personally I think that the La Nina event may have an impact on some of those listed and snow ball the others into play.
The cold weather is causing wide spread crop interference. There are major problems in the rice exporting countries of Asia. Floods have curtailed Australian crop harvesting etc.
These will bring about your food commodity price increases.
The colder weather will increase the demand for pricing for heating commodities which will raise prices. – e.g. heating oil.
Higher oil, food and commodity prices cause inflation.
As Joe Bastardi has said on his Accuweather.com blog, The world does not produce enough energy for the current worlds population if a downturn in world temperature as was experienced during the sixties and seventies returns
Funny how that last era of well above $100,00 a barrel oil co-incided quite neatly with the GFC.
“husbands without faults, if such black swans there be.”
From Juvenal’s Satires.
Given most of your headline points were Eco-political, here is something else he said;
“who will guard the guardians themselves.” (especially broke ones)
Logically a true black swan event will be none of those things. Statistically a black swan event was just as likely on 9/11 as it was on any other date. By definition they cannot be predicted nor can they be prepared for. Preparing for a black swan event would be like those In New Orleans preparing for an earthquake or forest fire. Not trying to be critical but more intending to say we don’t know what we don’t know.
@GoneWithTheWind, Good Point. I use the term loosely.
All night long I had some of the worst nightmares about this jet black swan, with piercing black eyes, with a pitch black beak that kept biting me and biting everyone around me, even strangers. It got me to thinking about the fact that it might not be one black swan that takes down the United States and even other countries, it might be a whole flock of “smaller” black swans that take down everything.
A series of tornadoes might not do much to hurt the country economically, but throw in a few major hurricanes hitting the oil hubs in the Gulf and maybe a metropolis like New York and that will take a real “bite”.
A 8.0 in California and 9.0 on the west coast of Washington and Oregon and a 7.5-8.0 the New Madrid Fault.
Some radical terrorist group decides this is the time to strike.
The US dollar finally goes into a tailspin.
Regional war breaks out with Israel and the Muslims.
More volcanoes go off someone and cool the temperatures enough to ruin the summer food crops.
Some new plague comes out of India and or Africa.
The European dollar dies because of Italy, Greece, Portugal, Ireland, and others defaulting.
There is some large solar flare that fries the satellites and communication systems of the world, but spares the world an EMP pulse on the ground.
The Japanese Fukushima reactors actually contaminate Tokyo enough that the radius of evacuation expands that tens of millions have to leave their homes and businesses, talk about what losing trillions of dollars would do to the world markets.
It just will not stop raining in areas that lead to 10000 year or more type floods that devastate thousands of square miles.
The weather actually starts to behave unexpectedly and the world starts to see weather events that actually look apocalyptic, much like ‘The Day After Tomorrow’ movie.
Anarchy and riots break out everywhere, like the Middle East, and the governments cannot quell them.
Of course the totally weird catastrophe that no one saw coming.
The above scenarioes would be unthinkable happening one after the other so close together, but just look at the way things are going now. It seems like you wait, it gets calm, then boom something happens like in Joplin, Missouri, then it gets quiet, and then boom something else. Everything said above is very plausible and quite possible to occur within the next year or even with a few months or weeks. The way things are going, maybe even days. The other long shots like a supervolcano going off, an asteroid hit, massive 10 pointer earthquakes, etc. still are on the table also. Strange times like this bring strange happenings.