Debt Incurs Fragility

Fragility: easily damaged by insults
Robustness: able to withstand insults

Evolution has designed the human body with robustness. The liver and spleen, both somewhat delicate organs, are protected behind the bottom of our ribcage. Peripheral nerves can regenerate. The most vital organ in the body--the brain--is encased in hard bone. The organs that probably suffer the greatest violent insults--bones--can heal to near baseline strength after breaking. The peripheral arteries are located very deep within the tissue of our limbs.

Another way the human body achieves robustness is via redundancy. We have two kidneys. Should you receive a spear to one kidney (and somehow manage to survive the insult), your other kidney will take up the slack. In modern times, this is how people can donate a kidney and do just fine. There's redundancy.

We also have two lungs, two eyes, two ears, two testicles/ovaries, etc. One of the most redundant systems in the body is the superficial venous system. You can knock off lots and lots of superficial veins and other veins will take over the return of blood flow to the heart, which is the basis of the treatment of varicose veins.

Consider a person who has donated a kidney. Now that system no longer has redundancy. If that one kidney fails, he's in deep trouble. So he has to really watch his health--monitor his blood pressure, avoid getting Type II diabetes, and avoid major trauma. His body is now more fragile.

Consider a person whose kidneys no longer work. Now he's on dialysis. His body is extremely fragile. He's dependent on an artificial kidney (dialysis machine) which only approximates the real thing to an imperfect degree. Patients can sometimes live a long time on dialysis, but in general, their life expectancy is limited compared to someone with one or two kidneys.


Let's consider that you have $100,000 saved up. Divide that into ten portions, or "aliquots", of $10,000. Let's say you invest one of those $10,000 portions. If that investment fails, you still have nine more portions--$90,000--left. This strategy of only investing one out of ten portions is not that risky. Why? Because it's redundant. Just like you have two kidneys, you have ten portions.

Let's say you invest five of those portions, i.e., $50,000. If that investment fails, you still have $50,000 left. Still pretty good, but potentially half of your savings could be wiped out. That would be analogous to losing one kidney. The system, initially redundant and hence robust, is now fragile.

Perhaps we can assign a "redundancy factor" of 9 to the first scenario (nine portions saved to one portion invested). That would mean a redundancy factor of 1 to the second scenario (five portions saved to five portions invested).

Let's say you invest nine of those portions, i.e., $90,000. If that investment fails, you only have $10,000 left. Our redundancy factor would be 0.11 (one portion saved to nine portions invested). You're getting more and more risky with your money. If your investment fails, you only have a little bit of savings left. Your net worth is fragile.

Now let's consider that you don't have any savings. Instead you borrow some "portions" from other people. Let's say you borrow $10,000 from someone else. If your investment goes bad, that borrowed portion goes bad, and you owe another $10,000 to the person you borrowed from. You'd probably have to sell your other possessions in order to pay it back.

This is a very precarious situation. The redundancy factor is now negative. I'm not sure the proper way to calculate it-- perhaps -1 (one portion borrowed against one portion needed to be liquidated in case of investment failure). Regardless, I don't want to get into any argument about this redundancy factor that I made up. It's simply a conceptual exercise.

As we move along the various scenarios, one thing becomes clear: the less redundancy you have, and the more debt you take on, the more it becomes paramount that your investment is a success. You have to get it right. You have to make a sound judgment about the economy, your competition, people's preferences, your enterprise, etc. You have to get it right. The more you borrow, the more vital it is that you perform. This is fragility. Any small mistake can ruin the whole thing.

In an economy in which people, corporations, and the govt are taking on massive amounts of debt, you have fragility. Everyone taking on debt has to be extremely accurate about the future or else they're in deep, deep trouble.

The amount of debt has increased since 2008. We now have greater fragility in the system than 2008. Going into more debt is no solution--it's throwing gasoline on the fire.

This post was inspired by the writings and interviews of Nassim Nicholas Taleb, though I'm not sure he'd agree with all of it.

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This is my problem with those who want to go to a gold standard next week or privatize Social Security. Our fragile system cannot take these insults. Change, even change for the long term better, is still an insult to the system.

Phase out the mortgage deduction. Eliminate the deductibility of margin interest. Make sure that dividends and other non-leveraged profits get equal or better tax treatment than debt instruments. Steepen the yield curve and don't let the arbitragers milk it while hiding behind corporate liability veils. A steeper yield curve means grandma has a place to put her money. The Wall St. wizards are robbing grandma and the government bailed them out for their nefarious efforts.

"Our fragile system cannot

"Our fragile system cannot take these insults. Change, even change for the long term better, is still an insult to the system."

And that is why I feel that government must hold the course. Attempts at reform now would be beyond self-destructive, suicidal would probably be the precise term. If anything, the parasites understand how to keep the victim alive just long enough to find a new host.

"The course", i.e. what

"The course", i.e. what government has been doing, is to take on more debt - at an accelerating rate. As the title says: debt incurs fragility. The worst thing is to "hold the course", which is what increases debt and increases fragility.

The worst thing to do is the

The worst thing to do is the only thing to do that wont break the system over the knee of economic reality.

Buck the status quo and you will see state initiated chaos in the streets, privation like this country has not known since the last great depression. Perhaps worse due to the demographic shifts that have occurred since the last time.

I feel that reform is pretty much impossible at this point, due to the fragility of the system. Perhaps postponing the inevitable is all we can look forward to, it certainly gives me more time to acquire assets that are depression resistant (victory garden, etc).

Leninofliberty says he

Leninofliberty says he "agrees" with JWilde and you write as if you agree with Leninofliberty, but JWilde writes:

Going into more debt is no solution--it's throwing gasoline on the fire.

I agree with that, and my comment above merely repeats that point. JWilde has presented a good case for it. Somehow you and Leninofliberty seem to have turned JWilde's point on its head.


Uh, perhaps you should just stick to what I said. I never said I agreed with JWilde. On the fact that the system right now is prone to insults (the original premise), it seemed that we all agreed or accepted the language for use in this discussion.

I agreed with one sentence out of many that LeninOfLiberty wrote, the one that I quoted and expounded upon with my own thoughts. The statement I agreed with was clearly not his conclusion, clearly.

I explicitly stated that reforms will not work and will bring the system down. Which is against the conclusions of both JWilde and LeninOfLiberty. In attempting to avoid this kind of argumentation by you - that I am somehow implying something and abandoning it when it becomes unworkable in debate - I have made sure to be explicit.

I feel like Rodney Dangerfield. No respect! Take the DR... please! :D

You're still not being clear

You're still not being clear enough. Here, I'll connect the dots and relate what you're saying to what JWilde is saying. JWilde is saying that the ballooning debt is causing the system to become more fragile with each passing day, so that the only options are to either:

a) let the debt balloon even more, in which case the system becomes more fragile with each passing day
b) stop the madness, bring the debt under control.

Lenin is saying, in essence, don't be too sudden in brining the debt under control, because the very act of bringing the debt under control is going to break the already-fragile system.

You are saying, in essence, that any action whatsoever that would bring the debt under control would collapse the system, so the only choices are to collapse the system now, or let it continue becoming even more fragile with each passing day, and let it collapse later (which it will, inevitably). There is no fixing the system. There is only collapsing it now or later.

I figured what I was saying

I figured what I was saying was obvious. Your distillation of my position is completely correct.

Not holding the course

I don't argue for "holding the course." I argue against making reforms in the wrong order. I listed a rather extensive number of reforms. I'd like to see some serious government cuts. "Just say no" to stimulus!

But there are plenty of ideas in the libertarian playbook which would be disastrous if played now. Order of operations is important.

As if anybody pays attention

As if anybody pays attention to libertarians. Your warnings are moot. Moving directly to a gold standard is not even remotely likely under either a democrat or republican or for that matter tea party government. Heck, even the tea partiers, the most radically libertarian major faction, merely want to avoid piling up trillions of new debt because they want their existing entitlements like Medicare to remain solvent. Tea partiers in reality are the only economic moderates left, since even the republican establishment, represented by bush and McCain, pushed the democrat-supported 700 billion bailout of fall 2008, which is what kicked off the current round of insanity. The only real possibilities range from extreme left wing (democrats) to center-left (tea party).

Don't worry. Our owners will not crash the system

as long as there is still a trillion left to steal. After it is all gone then they will not care. My best guess is the central governments will fall apart and we will return to a city-state experiment. The big cities have the power, not the farm lands.