zerohedge.com / By Tyler Durden / 09/06/2013, 20:01 -0400
“When it comes to market events, there have been no impactful black swans – the so-called unexpected ‘tail events,” Mark Spitznagel notes in his excellent new book, The Dao Of Capital: Austrian Investing in a Distorted World, explaining that, “what were unseen by most, were indeed highly foreseeable” by others. The Fed planted the seeds for the last financial crisis with interest rate intervention going back to the dot-com crash, when “weird things happen when interest rates don’t reflect what going on in the real world.” As he explains in his book how the financial system should work (absent all government intervention), he reminds us in II that “when you prevent the natural balancing act, you get growth that shouldn’t be happening.” In fact, he notes, “the huge ebbing and flowing of business cycles that we see now is not a natural feature of financial markets.” Without intervention, he concludes, “we might have less severe cycles based on creative destruction, with new inventions replacing old ones.”
The Danger of Artificial Changes
Excerpt from Chapters 2 and 8 of Mark Spitznagel’s excellent new book: The Dao of Capital: Austrian Investing in a Distorted World
In the forest, the commingling of aggressive angiosperms and suppressed conifers results in an overgrown tinderbox, especially vulnerable to a spark such as a lightning strike. Or, as we might say, this is evidence of malinvestment that occurs unnaturally in the forest-economy (where fire suppression is practiced) and the need for available resources to be reallocated to healthier growth. It is not the deadwood, and it is not just the accumulation of a network of otherwise many small fires into one big one — the rationale that is a cliche among the complexity types. Rather, it is artificial change in the ecosystem and the temporal structure of its growth patterns — a wearing-out without replacement — that makes the forest prone to fire. The failure of live trees to thrive — and the forest’s failure to adapt as a result of internal competition — produce unhealthy, unwarranted, and unsustainable growth that upsets the balance of the system.
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