The West is also involved in the conflict between Russia and Ukraine, imposing successive sanctions on Russia, while Russia threatens to close the energy supply tap to Western countries.
Transiently continuing volatility in the stock markets is normal and expected. After all, the big fluctuations also result in the big benefits-profits, for those, of course, who manipulate these markets. But the negative effects on other markets and real economies will, unfortunately, last as long as energy prices remain high.
The appreciation of the US dollar is exacerbated by the fact that the FED has already announced that in 2022 it will raise its key interest rate. In addition, with the aim of de-escalating inflation, it will gradually implement the monetary policy Tapering, ie limit quantitative easing. No such decisions have been announced by the ECB. Rising US interest rates, rising energy costs and the expected higher-than-expected demand for supply will contribute to the growing demand for the dollar, leading to a further appreciation, as global trading is mostly priced at dollar.
The above actions will cause an accelerated inflow and accumulation of investment funds in the USA, which will have a double benefit, as on the one hand it will finance the budget deficit caused by the pandemic crisis, and on the other hand it will finance the development of its economy, without the need to issue new inflationary money.
The euro, on the other hand, will only partially depreciate against the dollar, as has already been observed. After all, sharp fluctuations between “hard” currencies cause similar imbalances in real economies, which is not desirable among developed economies.
This devaluation will benefit Europe’s export economies, such as Germany, which will offset the accumulated costs caused by the pandemic crisis, which is currently estimated at around €360 billion.
In contrast, Europe’s smaller and non-export economies will face major economic problems, such as higher government deficits, higher public debt, higher inflation, higher interest rates, and the risk of stagflation.
We conclude, then, that economically strong countries provoke and create during the crisis, while weak countries remain observers of the events, waiting for the effects of the crisis, unable to react. Any action that ends up being unilaterally beneficial for some economies, but unilaterally burdensome for most countries with weak economies.
This phenomenon is observed after every crisis and refers to the so-called animal spirits, cited by Keynes, according to which economic activity comes from rational economic motives, but part of it is controlled by animal spirits, which are the main cause. of economic fluctuations. Understanding the operation of the economy presupposes understanding how it is manipulated by animal spirits, influencing human behavior and making it irrational, even impulsive.
Τhe problems that plague most economies today are the result of processes that seek to keep the whole situation under control. The result of the lack of control, the degree of uncertainty on the part of financial actors, at every level, is exacerbated by the fact that asymmetric information is now well established, as a result of moral hazard, which ultimately leads to adverse selections, with all that entails.
Despite the rapid global economic developments, what should not change is the main goal of any business that is to grow and increase its profitability. Panic and despair are the worst advisors for the entrepreneur and the business. After all, the Falacy of Composition applies to economics, which means that what applies to the individual does not necessarily apply to the economy as a whole and vice versa.
The indicators of the economy as a whole may be positive, as in the present phase, and yet an individual enterprise is faced with the law of bankruptcy. In the midst of any unexpected developments, due to the present or any other crisis that may arise, every entrepreneur should, empathetically, recognize the new opportunities, make use of the tools provided by technology and make the most of all the materials and other resources that has his business. Also, every entrepreneur should have insight, flexibility, creativity, bargaining power and a spirit of cooperation, turning uncertain.
