After significant recovery in world markets over the past year, stock markets around the world, again, dramatically crashed—the Dow Jones having seen its single biggest drop in history yesterday. Although the Dow’s very untimely plummet was primarily due to a technical glitch, it coincided with the other more ominous cause, the virtual collapse of the Greek economy and how its failure to meet its economic obligations could potentially impact the Eurozone, and ultimately, the world economy. The primary reason for the economic jitters in the markets is the apparent unwillingness of the Greek population to accept far reaching austerity measures before being given a more than a hundred billion dollar bailout.
The irony being that hope for the future good health of the global financial system is contingent on Greece’s ability to fix its financial and political mess, so to marginally be able to pay back its financial obligations by further increasing their indebtedness. This considering that Greece is notorious for its inability to do so under normal circumstances, while additionally having a history of anarchic social unrest and endemic corruption.
A precarious spectre indeed, that the hope of the world is pinned on the cooperation of one of the most unenthusiastic of participants.
What makes matters worse is that the only significant economic green shoots appear to be the result of government stimulus. While this means the stimulus had worked and thus prevented an all out crash, it should be cautioned that it was financed by taxpayers, but moreover, by debt. Why the Greece crisis is important to consider in this regard, is that it is apparent that world liquidity is beginning to drain and that these packages are not indefinitely sustainable. More ominous, however, is that Britain has an even greater deficit than Greece yet are still in a recession, while they are still to do significant infrastructure building before the 2012 Olympic Games. A healthy scenario would be that the deficit should be at its peak once all infrastructure expenditure was complete, but that there already appears to be no room left in the British economy for any further government stimulus—in comparison, South Africa, who is hosting this years World Cup’s, budget deficit is about half of the UK’s after infrastructure completion. And this is not the end of Britain’s woes, added to the mix, the UK will be facing the uncertainty and unpredictability of the first hung parliament in over thirty years.
What the overall scenario suggests is that the bailouts may just have temporarily deferred the true extent of the economic crash, and that the worst may yet. Nevertheless my view is that this was not an all out negative as the shock of what may well have happened after the Lehman Brothers collapse, could well have left the world in a state of total paralysis and despair. Instead an unprecedented global response had resulted, and that this truly is the most important green shoot we all could’ve hoped for given the then prevailing circumstances—albeit that son for the current crisis was the lack of a timely response by the Eurozone itself to protect its currency. What we now have to come to terms with, is that it may well get even worse, and for quite a long time to come, before it will get any better, and that bailing out Greece, again, merely is buying some time.
You may ask why I’m giving such a bleak prognosis.
Well, it’s merely that the objective facts are pointing to such an impending future, notwithstanding that it well may not come to pass. Making such a bleak prediction also doesn’t mean that one should now stop any grand plans, rather that one should indeed pursue or plan for it regardless, but whilst doing so, to take cognizance of the worst case scenario. And if you can still stomach it and get all your ducks in a row to come up with a viable plan, by all means go full steam ahead.
Thus if you can foresee the worst case scenario, and yet have the determination and resolve to proceed, do it.
Positive thinking as a default cognitive approach is not the way to go as it can very well be equated with wishful or delusional thinking, it being a sure recipe for failure during the current uncertain times. Warren Buffett once remarked “Be fearful when others are greedy and greedy only when others are fearful”, meaning that he gets very nervous when everyone else gets overly excited, and that he rather makes his boldest moves when everyone else are nervous.
He also said “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right”.
This brings me to the point I’ve been making in The Scourge of our Time: The Demise of Critical Thinking in the Age of “The Secret”, that it was positive thinking that got us in the financial mess we are in the first place. Furthermore, that it is not about positive or negative thinking, rather that we be critical, and that, more often than not, seeking out the negative first is the most crucial way to achieve a lasting positive result. Thus having a critical thinking capacity is the surest way to survive the potential storms which - given the prevailing circumstances - are more than likely to come.