Nassim Taleb: Worry about the US more than the EU

My favorite author iconoclast Nassim Taleb says that the US and not Europe should be the source of concern

From Bloomberg,

Nassim Taleb, author of “The Black Swan,” said he favors investing in Europe over the U.S. even with the possible breakup of the single European currency in part because of the euro area’s superior deficit situation.

Europe’s lack of a centralized government is another reason it’s preferable to invest in the region, said Taleb, a professor of risk engineering at New York University whose 2007 best- selling book argued that history is littered with rare events that can’t be predicted by trends.

A breakup of the euro “is not a big deal,” Taleb said yesterday at an event in Montreal hosted by the Alternative Investment Management Association. “When they break it up, there will be a lot of fun currencies. This is why I am not afraid of Europe, or investing in Europe. I’m afraid of the United States.”

The budget deficit as a proportion of gross domestic product in the U.S. amounted to 8.2 percent at the end of 2011, government figures show. That’s twice the 4.1 percent ratio for euro-region countries, according to data compiled by Bloomberg.

“Of course Europe has its problems, but it’s in much better shape than the United States,” Taleb said. He voiced similar concerns about U.S. prospects at a conference in Tokyo in September…

Rising interest rates would make things worse for the U.S., said Taleb, a principal at hedge fund Universa Investments LP who also serves as an adviser to the International Monetary Fund.

“We have zero interest rates,” Taleb said. “If interest rates go up in the United States, you can imagine what the deficit would be. Europe is like someone who is ill but is conscious of it. In the United States we are ill, but we don’t know it. We don’t talk about it.”

In my view, decentralization of the EU will likely be the outcome from the collapse of the welfare states where Greece may likely to set the precedent.

And like Dr. Marc Faber and Professor Taleb, for the EU, after the storm comes the calm.

I would venture a guess that the tipping point for the US dollar as global currency reserve, is when the US economy run smack into another recession or into another financial crisis, where the knee jerk or intuitive response will likely be trillions of money printing by the US Federal Reserve. Under such condition, I think Professor Taleb’s risk scenario may unfold.