Tuesday Links

Artificially Constrained Volatility

• "[T]he history of macroeconomic interventions post-WW2 has been the history of prevention of even the smallest snap-backs that are inherent to the process of creative destruction. The result is our current financial system which is as taut as it can be, in a state of fragility where any snap-back will be catastrophic."
• Taleb on complex systems that have artificially suppressed volatility: they "tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface."

Misc

• Ray Dalio: "I think the distinction between creditor and debtor nations is interesting. Western economists have for a long time believed that economic growth is driven by consumer spending. I think economists are confusing cause and effect. On the contrary, I think economic growth is driven by savings and capital investment—consumer spending is just the effect of the economic growth, not the cause of it."
• Rent seeking: huge price increase in NYC taxi medallions since 1980. A parabolic looking "five wave up" pattern. I'll bet Prechter would tell anyone in the NYC taxicab business to reduce their exposure to medallion prices to zero. You could actually do that and stay in the business, by selling your medallions and leasing them back. And I suspect that the price/rent ratio for a medallion is really high since everyone assumes continued capital gains are guaranteed. 
• Latest Hugh Hendry interviews.