Bayesian contingency plans
It is impossible to accurately predict the future. All we have is a number of probabilities and appropriate strategies and contingency plans.
Bayesian thinking dictates that we adjust those probabilities and plans as we obtain new information.
When I consider the probabilities that my life is exposed to, I start with what I think is simultaneously highly likely and highly impactful:
There is almost no chance that our governments will be able to relieve their current debt predicament and while no one can predict the exact time of collapse, it is almost certain that the situation will deteriorate rather than improve from here.
The above is true if, like me, you believe two things:
- Democratic governments are incapable of longer term fiscal austerity because of the pressures of democratic elections. In other words: When given the choice, voters will always pick future generations’ suffering over their own.
- Simple arithmetic dictates that in the absence of fiscal austerity, debt will keep increasing. As a result the cost of servicing that debt goes up and every incremental dollar printed by central banks has a decreasing impact. This has all the characteristics of a ponzi scheme. It all looks fine until it doesn’t.
What are the implications:
- As the debt predicament continues to worsen, political radicalization is poised to further increase — in some countries beyond the breaking point.
- The cautious citizen ought to have contingency plans to ensure their family’s safety.
- Your assets will continue to appreciate but only because they are appreciating against a failing currency. You need to do a much more complicated math to convince yourself that you are not losing purchasing power year after year.
- Beware of assets that have counterparty risks and strictly speaking there are few assets that don’t.
- Prepare for your government to lie to you as they are trying to handle the above situation. There is no world in which politicians can not lie and keep their job.
Be safe out there and have a great weekend!
