Shrewd Thinking: Staying Prepared Against Even More Unknown Economic Crises

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With lives around the world becoming increasingly interconnected by the day, the number and variety of potential threats consequently rises. 

With the advent of globalization, the world has been a subject of five major threats, namely terrorism, economic crises, pandemics, natural disasters, and nuclear proliferation. 

Current world politics allows us to make a number of educated guesses of what crises may occur in the future. 

Instead of worrying about the inevitable, intelligent investors, political leaders and every citizen should find ways in which they can prepare and defend themselves against these disasters, and even try to benefit from them. 

In this piece, we’d like to take you onto a short reality-based journey, analyzing and exploring the possible catastrophes from the ongoing COVID-19-triggered economic recession and other upcoming unknown Economic crises.

Economic crises can occur due to a multitude of reasons. 

Loss of competitiveness, disrupted trading, irresponsible financial practices, and changing demands in the world can all cause stagnation or contraction of economies. 

Assorted Banknotes and Round Silver-colored Coins

A recession refers to two quarters of straight declines in a country’s GDP. 

The 1997 Asian Financial Crisis and the dot com bubble created large losses of capital for companies and shareholders alike which spilled over to the working population, resulting in waves of retrenchment taking place. 

It often leads to the drastic fall in standards of living of people globally with many losing jobs and consequently their incomes.

It will be difficult to find ways to turn the dark tides in your favor but those who are successful are often rewarded handsomely.

As unemployment rises and supply of workers increases, wages often go down which is beneficial for business owners. 

Furthermore, vacuums in markets tend to be created with these financial downturns as inefficient and obsolete businesses die out. Instead of falling into despair as you lose your jobs or experience slowing demands in your business, it could be a time to take risks and come out on top when the economy starts to recover.

With the world’s economies being so interlinked, an economic disaster occurring in one part of the world can quickly lead to a domino effect, where the global economy can eventually be negatively impacted. 

Given the rise in sensationalists and populists in politics today, politicians have been more willing to mortgage long term growth in return for short term gains. This is done to earn votes among the masses and can often be highly damaging. 

The United States has reduced interest rates and cut both income and corporate taxes in the later part of the 2010s, which has resulted in record-level gains in the stock market today. 

What is unknown, however, is how the gaps in public spending will be funded and how a bubble is likely to have already been created. Assuming the burst of the bubble of the stock market of a country that controls 25% of the world’s GDP, we can quickly assume that a worldwide economic crisis can occur.

Hence, given the uncertainty and general sense of inevitability of market downturns, one must be prepared to deal with possible quick and lethal economic massacres.

The impact will be far-reaching effects of an economic meltdown

Financial crises typically entail shrinking GDPs which points toward lowered demand for goods across the board. 

Consumption, investment, and foreign exports have likely fallen. Most businesses will earn lowered profits and even begin losing money. 

Businesses will begin to lower production and lay off workers to save costs. 

Incomes fall and spending thus falls even further, resulting in a vicious cycle that may only be broken through the intervention of the government.

The market capitalization of companies is likely to fall as investors rush to preserve the value of their assets by converting their holdings into cash. 

This can quickly result in a massive market crash and result in the shutdown of numerous firms. 

Close-up of Coins on Table

As the entire economy is affected, citizens of countries with saving and investment plans will see a drastic fall in the value of their assets which can decimate lifetime savings. 

It can be likely for the aged to have trouble finding jobs and rebuilding their savings, thus making them likely to require government assistance or welfare payments to survive.

Effective government intervention often comes at a cost. Money being injected into the economy either comes from the government’s large reserves or is being borrowed. 

These debts or deficits will be repaid in the future through the implementation of higher taxes. This thus makes it a case of pursuing short term gains by sacrificing a portion of long term growth. 

This can be worth it if it means starting up a depressed economy again. 

However, some stimulus policies may go too far and contribute to inefficiencies in the market and cripple the economy for years to come.

As money is being injected into the economy, legislation must be enforced to ensure that companies improve on their productive efficiency so as to reduce their reliance on government aid in the future. 

Blind administering of aid will only lead to great inefficiencies in the economy where companies do not innovate and are always complacent due to the fact that they are able to fall back on government bailouts in times of need. 

The effects of a global financial crisis will be felt by everyone and the impact will only be cushioned effectively through responsible implementations of sound financial policies.

This piece is an excerpt from the recently-released Paris Talks ebook.  Shrewd Thinking: Staying Prepared Against Humanity’s Greatest Threats is a prudent call to action for anyone in a leadership position to take the steps required to survive and even thrive in the face of a disaster. Planning alone isn’t enough anymore. Adapting is the new normal.

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