Bloomberg Evening Briefing: A ‘White Swan’ May Be Coming for the US Economy

Nassim Nicholas Taleb is famous for writing The Black Swan, but these days he’s warning of a white swan, a risk that rather than being rare is somewhat more probable—and in this case coming for America’s economy. Like an increasing number of economic observers, Taleb says the cause of this calamity-in-plain-sight is the federal budget deficit. He says it’s swelling by such an extent that it would take a miracle to duck the damage that’s on the way. And he’s not alone. Taleb joined former US Treasury Secretary Robert Rubin and BlackRock Vice Chairman Philipp Hildebrand in sounding the alarm over consequences stemming from exploding debt—let alone default—and what that could mean for the dollar’s global status. “So long as you have Congress keep extending the debt limit and doing deals because they’re afraid of the consequences of doing the right thing…eventually you’re going to have a debt spiral,” Taleb said. “And a debt spiral is like a death spiral.”

The International Monetary Fund raised its forecast for global growth this year on the expansion in the US and fiscal stimulus in China. The world economy will grow 3.1% this year, up from the 2.9% seen in October, the institution said Tuesday. Tighter central-bank policy to fight inflation and public-spending cuts in some countries are among the reasons why growth is expected to be slower than in the two decades before the pandemic, when it averaged 3.8%. Still, given the scale of the Covid-19 price shocks and the interest-rate hikes that followed, the IMF suggested things could have gone much worse. “The global economy continues to display remarkable resilience, and we are now in the final descent toward a soft landing with inflation declining steadily and growth holding up,” IMF Chief Economist Pierre-Olivier Gourinchas said. “But the pace of expansion remains on the slow side,” he added, “and there might be turbulence ahead.”