economy rollercoaster

Riding the economic rollercoaster – didn’t we learn anything from Lehman Brothers?

Before you panic more than absolutely necessary, a spoiler: yes, we did learn something. While the crisis is today imminent and talks about recession are beginning to loom, there are several indicators of the fact that deep down, this storm will eventually pass just like the earlier ones. Still, the best thing to do is to keep your eyes on the ball and focus on your own strengths. One of the most essential lessons learned is that especially at times like these, you can never be quite certain of what’s waiting behind the next corner.

With the holiday season looming right around the corner, let’s look at the good news, brought to us by the second quarter of 2023.

First of all, at least most buzz around the energy crisis seems to have calmed down, at least from the time when we were waiting for the winter to arrive, with the fear levels at the level of doomsday. Turned out it was not the end of the world after all. In fact, the gas and oil prices are expected to actually decrease towards the end of the year more than initially anticipated. That should, respectively, throw at least some sand to the wheels of inflation and, hence – dare I even say that – bring down the cost of living.

It is also beginning to really look like that advanced economies have taken even better care of their GDP’s than initially expected, largely thanks to the feared supply shortages failed to materialize after all. Another nail in the coffin of inflation!

At least for now, the banks keep struggling

On the flip side, the global plunge in real incomes and rise in interest rates are making banks struggle, and that must have an impact on the economies in general. Central banks were just a tad late in their policy tightening moves, and with Credit Suisse being taken over just to help it survive, as well as a couple of U.S. banks collapsing, there is every reason to be at least a bit concerned of the well-being of the banking sector.

Sure, the officials are watching the banks’ every move in fear of Lehmann Brothers returning, and to their credit, at least as of now, it does look like they are doing a decent job in that. Let’s keep our fingers crossed though. With credit becoming tougher and more expensive to get, the prices of homes might go down sharply. While that pleases the buyers and makes life difficult for the sellers (contrary to the situation in the era of cheap credit) it is a double-edged sword also from the entire economy’s point of view.

Uncertainty grows at the global level

China’s re-opening after the pandemic is an issue that affects global economy, this year perhaps more so than ever before. At the moment, they are putting pedal to the metal and the country’s GDP is estimated to exceed earlier targets for this year. Then again, all that massive support to get the country back on track has by now been implemented, so more or less from now on, the time has come to swim – or sink. While China may very well be able to keep its nose above the water, the pace of growth will more than likely slow down quite considerably during the last two quarters of 2023.

The situation is not that straightforward with the central banks, either. While they have more than their fair share of juggling to do in order to establish both financial stability by giving out generous loans and lower inflation by raising interest rates, they must also keep a finger on the pulse of for example labor market, which keeps on creating its own challenges. Either way, someone is going to blame the central banks for whatever they do, so keeping an eye on the big picture gets understandably more difficult as pressure from all sides continues to mount.

Change may hurt, but it should end up for the better

Change always happens only after some kind of a chaos, and despite all the actions and measures to prevent it, some kind of a recession seems inevitable. That is, at the end of the day, more or less automatic after a series of policy tightening actions. That is just how the market operates: supply, demand, competition, relative advantage, price elasticity, economies of scale, and all that stuff.

Again, let’s not panic out there. As one famous economist and banker used to say, the market is always right.

Another pattern related to all this is that the economy always goes around in circles. Every move is followed by a countermove, and every rise will eventually end up in a fall. It is not the direction as such that makes us squirm in agony, it is the ultimate impact and how we are able to control it. We have weathered numerous economical storms before. Sure, there have been a couple where it all got out of control, but in the long run we have always survived, even flourished.

Whether we talk about change on an individual, organizational or on a societal level, it is also always caused by dissatisfaction towards the current situation. While it may take a chaos to start a change, we must keep in mind the good intentions behind it.

If going down is the only way up, so be it – as long as the plunge won’t be so deep and uncontrolled a sit was back in the days of Lehman.


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