Roubini doom scenario: It looks like 1914 again

[bananas]

Source: CNBC

With many parts of the world gearing up to commemorate the one hundredth anniversary of the start of the First World War, Nouriel Roubini has solidified his hold on the title "Dr. Doom" by suggesting parallels between 2014 and 1914.

There may be no Austro-Hungarian empire or Archduke Franz Ferdinand, but Roubini tweeted this from the World Economic Forum (WEF) in Davos today:

many speakers compare 2014 to 1914 when WWI broke out & no one expected it. A black swan in the form of a war between China & Japan?

He then tweeted some of the reasoning behind this train of thought.

Echoes of 1914: backlash against globalization, gilded age of inequality, rising geopolitical tensions, ignoring tail risks

While Roubini is renowned for his bubble warnings and doom scenarios, his concerns weren't drawn out of thin air, but rather taken mainly from the lips of Japanese Prime Minister Shinzo Abe.

According to reports from both The Financial Times and BBC, Abe said on Wednesday that China and Japan were in a "similar situation" to that of Britain and Germany ahead of World War One.

<snip>

Read more: http://www.cnbc.com/id/101357494

[hvn_nbr_2]

1. What does "ignoring tail risks" mean?

It's in this paragraph:
"Echoes of 1914: backlash against globalization, gilded age of inequality, rising geopolitical tensions, ignoring tail risks"

[Titonwan]

2. Watch yer ass? n/t

[mathematic]

3. The tail (ends) of the probability curve

Are you familiar with the bell curve? Big in the middle for the most common events and falling off towards the ends for the less common events? "Ignoring tail risk" means that your planning is focused on the most probable outcomes. As a result, less probable outcomes will catch you unprepared and may have disastrous results.

[modrepub]

4. Nassim Nicholas Taleb

Look him up, he has explained a lot of the verbage seen in this post. "Ignoring tail risk" probably refers to the "fat-tail" risks. In a nut shell it means a highly unlikely, unknown or infrequent event that leads to impacts that are vastly larger than one could imagine before they happened. In the WWI example, who could have predicted that an assasination of an heir to the Austro-Hungarian Empire in the Balkans would lead to the deaths of 8.5 million people and the dissolution of two Empires (Austro-Hungarian and Ottoman). In economic terms, the Great Recession was largely triggered by the assumption that housing prices would never fall and interest rates wouldn't go up (in tandum).

[sendero]

8. He coined the term......

...."Black Swan" to describe this possibility. the idea being that since most people have never seen a black swan, they think there is no such thing, but there is.

Put another way, he has some pretty elaborate and well described beliefs that include humans general inability to plan for and handle low-probability very-high-risk events.

There are a couple of videos out there, the guy is well worth your (anyone's) time IMHO. I personally think he is brilliant, although I'm not necessarily agreeing with the 1914/2014 comparison or its meaning.

[Joe Shlabotnik]

5. From the article,

Yet Roubini also mentioned the twin problems of a "backlash against globalization" and a "gilded age of inequality." The latter has been a watchword at Davos this year and has become the key focus of President Barack Obama's final term in office. In a speech to a think-tank in Washington D.C. last month, Obama described it as the "defining issue of our time."

Perhaps 1914 isn't a good comparison, but rather 1848 and 1968 could be: the former a year of revolutions across Europe; the latter a year of socialist, communist and student protests in the U.S., U.K., France, Germany, Italy and the USSR. Will 2014 be the year when there is a growing backlash against the prevailing status quo and rising income inequalities?

I think this is the part that scares the shit out of the Davos attendees the most.

[Demeter]

6. Good. I hope they go home and give away all their worldly possessions.

[yellowcanine]

7. "when WWI broke out & no one expected it...." This is bad history.

All of the great European powers had been preparing for war for years - it was not a surprise to European governments at least. The actual event which supposedly triggered the start of WWI may have been a surprise - the assassination of an Austrian archduke and his wife in Sarajevo in June 1914 - but clearly something else would have started WWI had there this not occurred.

[cthulu2016]

9. That is mega-silly. WWI was one of the less surpising events in history.

It was German policy to start WWI eventually, and everyone knew it. It was not an accidental domino-fall of secret treaties. It was fricking policy. The only question was when.

It had come close repeatedly throughout the early 20th century.

There were some thinkers who considered it impossible and their folly has been played up in retrospect (OMG! Not everyone thought exactly the same thing back in the olden days), but it was not a surprising "who saw that coming?" event busting out in a placid world.

If China had been on the brink of declaring for-real war on Japan three or four times since 2000 then it would be comparable.

[GliderGuider]

11. India-Pakistan; China-Japan; Iran-NATO; Syria-Israel; There are lots of flashpoint candidates today.

One scenario I think is possible would involve non-state Islamist insurgencies amplifying tensions between a variety of MENA states and the West, leading to an outbreak of state-based warfare. Oil supplies and food prices are potential triggers.

If we were to get a Big Kahuna, I still think India/Pakistan is the highest probability flashpoint.

The tensions required to precipitate a breakdown are rising constantly around the world, driven by rising energy prices, food prices and religious fundamentalism, enabled by the growth of capable, accessible and affordable surveillance and warfare technologies. These tensions show no sign of abating, or even IMO being amenable to abatement. We have entered a very dangerous period of human history.

[Blue Idaho]

10. I made a piece of toast the other day

It looked exactly like Archduke Franz Ferdinand. I think that says it all...