“the main parameters that identify something as a systemic risk are scale and irreversibility”
@normonics
Well, this is a quote of a quote from @normonics, so maybe he said this and maybe not.
The idea that is new for me is the systemic risk idea. “Rearranging deck chairs on the Titanic.” That doesn’t quite describe it. The Fed tinkering with interest rates is more like it. (To head-nod toward a common and pervasive risk that I don’t understand).
It’s a risk that is so huge you can’t see it, or assume it away, or don’t think about it. It’s part of the baseline, the landscape.
Systemic risks are out of my control and the consequences are profound.
It’s not easy to see systemic risks because they are unlikely to occur. We supply don’t see them all that often.
So this little quote is helps me because I ask the question “What is big?” when looking around me. Identifying something large is a step toward identifying fatal risks. We humans are tiny and fragile, after all.
Another way this helps me think in a useful manner is by asking “What is irreversible?” This can give hints toward revealing systemic risks. Not all irreversibles are systemic, though.
Enough of this blathering. The purpose here is to be resilient, to be able to ride out a storm. If the Federal Reserve and Congress fuck up the economy (don’t blame Wall Street because they are gleefully playing the cards that Uncle Sam dealt) how will I be sure that my family will eat and sleep in a warm, dry place every night? Or better yet, how can I be positioned to thrive and grow if everything goes sideways?
That’s what this little quote does for me. It forces my attention to much larger thoughts, beyond writing an SOP for something at work, beyond the immediate and the familiar.
It’s one thing to simply perceive an unbounded risk. It’s quite another to know how to engineer around it. And of course it’s damned hard to actually do the counterintuitive thing you need to do.
As usual, this is me musing to myself. That’s why this site exists.
One obvious answer comes to mind. I stopped vigorously paying down the mortgage at high speed when inflation jumped up. Keep low interest rate debt. That is the smart thing to do, right?
No. The smart thing to do, at when perceiving and building buffers against systemic risk, is to have no debt at all. It’s time to start up the big monthly pay downs again.