Tipping Point - Balancing Egg

Around this time in 2015, the International Monetary Fund’s Global Stability report questioned whether there was a sustainable recovery. The economic world being hooked on ultra-low borrowing costs.

Cheap money created to rescue the developed economies since 2008. Seems to have created inflated asset bubbles and due to low borrowing costs companies and countries have been encouraged to load up on debt. Emerging markets (India and Brazil) are in trouble.

The attempts to shore up the international financial system after the last crash with the Capital Adequacy Ratios and other systemic reforms, have been described as ‘brittle’ and fears that shocks to the global economy could lead to a sudden drying up of market liquidity.

So what of the UK. We have ‘Brexit’ and much confusion of what might be the consequences of withdrawal from Europe. Will the UK survive and thrive following the failure of the European Experiment?

Globalisation means that we have to take into account what is happening not only in Europe but the US, China and the ‘emerging’ markets. These economies seem to be in one sort of ‘pickle’ or another and of course by not addressing the fundamental causes of the last crash we at some point may have to ‘batten down the hatches.’

Is Brexit some kind of tipping point. As a member of the global community common sense dictates that we cannot trade and exist in isolation. Is it better together or better than on our own if things do not go to plan! The UK economy of which SMEs are its lifeblood are dependent on some kind of normalisation of the international financial system, if another crash transpires then SME will feel the effects.

Tipping Points

Are we reaching a ‘tipping point’? Are the conditions transpiring around the UK reaching a critical juncture?

If the UK is unable to obtain favourable trading agreements with other countries (and there are many of them) within a short period of time (2 years or so). This alteration could have an enormous impact. Could the UK survive a financial crash?

Behaviourist Scientists believe they might be able to predict tipping points. They contend that you get similar kinds of behaviour across many different kinds of systems including financial markets and economies prior to a dramatic event, i.e. a crash.

The calm before the storm. Financial markets start acting erratically right before they reach a tipping point. Historically there is an increase in volatility just prior to a large systemic failure.

The human condition is one of being very good at predicting in hindsight and failing to predict the calm before the storm before crash. Just look at Northern Rock and Lehman Bros for examples. We know about Brexit, the likely timetable but do we have sufficient time to adjust and perhaps react to another financial emergency. Hopefully the Deutsche Bank fiasco is not a similar precursor…

Practical advice

For SMEs it is better to assess the strength and capabilities and address perceived weaknesses from a position of well-being rather than illness. Plans can be made and appropriate actions taken.

PCR are able to assist you in this assessment simply make contact and speak in confidence.

My advice do not let events overtake you.

Sam Talby

Partner

 

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