Back in January, I made a financial forecast for 2008. In this post, I will update my analysis, looking both at what has happened thus far in 2008, and refining what is likely ahead. Most forecasts are made with an overriding assumption of infinite growth, but the analysis made in January and updated now maintains an underlying assumption of resource limitations, such as will likely accompany the advent of peak oil. Under resource limitations, debtors are likely to find it difficult to pay back loans, as resources become more and more scarce. As a result, default rates are likely to continue to rise. One of the issues I consider important in my forecast is systemic risk . This relates to the interconnectedness of the system, and predicts that if one part fails, other parts are also likely to fail. Many other articles mention this issue, but rarely address its full ramifications. Figure 1. An example of a system with systemic risk (Photo from homebuyerphoenix.com) [break] I also consider the impact of systematic bias , which is different from systemic risk . Systematic bias is more closely related to the issue of resource depletion, and the fact that the infinite growth is ultimately not possible. Lenders, and those who write insurance against loan defaults, assume that the future will be much like the past. If there is problem with loan defaults, the assumption is made that higher defaults are likely to be temporary. Models based on thi ...
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Back in January, I made a financial forecast for 2008. In this post, I will update my analysis, looking both at what has happened thus far in 2008, and refining what is likely ahead. Most forecasts are made with an overriding assumption of infinite growth, but the analysis made in January and updated now maintains an underlying assumption of resource limitations, such as will likely accompany the advent of peak oil. Under resource limitations, debtors are likely to find it difficult to pay back loans, as resources become more and more scarce. As a result, default rates are likely to continue to rise. One of the issues I consider important in my forecast is systemic risk . This relates to the interconnectedness of the system, and predicts that if one part fails, other parts are also likely to fail. Many other articles mention this issue, but rarely address its full ramifications. Figure 1. An example of a system with systemic risk (Photo from homebuyerphoenix.com) [break] I also consider the impact of systematic bias , which is different from systemic risk . Systematic bias is more closely related to the issue of resource depletion, and the fact that the infinite growth is ultimately not possible. Lenders, and those who write insurance against loan defaults, assume that the future will be much like the past. If there is problem with loan defaults, the assumption is made that higher defaults are likely to be temporary. Models based on thi ...