The recent worldwide plunge in stock prices has begun to fill me with dread.
These are the sorts of unnatural fluctuations that make you wonder whether the self-regulating function of the entire international financial market has itself disappeared. Japan cannot make a move, as it is in the midst of turmoil over the Long-Term Credit Bank of Japan issue and conflict between ruling and opposition parties, so it appears this situation may continue for a while.
During a business trip to Hong Kong in February, I actually played out a simultaneous worldwide depression scenario in my head, and it made me shudder. Here is the scenario:
First: rioting in Indonesia occurs
Second: China's economy falls into recession
Third: U.S. stock prices slump, leading to a simultaneous worldwide recession
The new Chinese Prime Minister Zhu was inaugurated in February, and the U.S. economy continued to be bullish (at least on the surface), so I forgot about those scenarios. Just recently, however, I've started to feel that all of them could actually come true (a riot has already broken out in Indonesia, and it is absolute chaos).
Hong Kong is now in the midst of a depression with no end in sight, and the decline in the Chinese economy isn't showing any sign of slowing and continues to struggle following the recent floods. Not yet included in these scenarios are the conditions in Russia and South America. Reviewing recent events, the Russian economy has been obliterated, and Central and South America appear to be slipping into the same rut as Asia. If this happens, Germany will be impacted by Russia, the economic malaise will spread westward from Eastern Europe and could well end up directly afflicting the U.S. And when you consider Japan's situation and the bottomless economic recession in Asia, it is also possible this economic contagion will travel eastward to hit the U.S., or there is a significant possibility that it might come from Central and South America to the U.S. as well.
If Europe and the U.S. go into a recession, the whole world would enter a total simultaneous depression (almost complete crisis). The U.S. and Europe are the only hope, but when you take a look at recent stock market patterns in those regions, you get the feeling that things have finally come full circle.
What most surprised me was the low savings rate in the U.S. Just 1% according to The Nikkei newspaper, and 0.2% according to Nikkei Business. Individuals in the U.S. are really committed to stock prices, so if the U.S. stock market was to crash, it is highly likely that a vicious circle would emerge in which individual consumption freezes over and the very factor that sustains the U.S. economy drains out, attacking corporate profits and causing stock prices to fall even further.
If U.S. stock prices do fall and the U.S. economy goes down as well, Europe will be drawn in, and the bottom will drop out of the global economy, paving the way for a simultaneous worldwide recession. Should this happens, economic and social chaos could result sometime between the end of this year and the end of the century. It is a frightening situation to imagine.
What is even more frightening is that there appears to be no strong economic zone anywhere in the world that could break such a vicious circle once it took hold. Typically, it has been be useful to look toward Asia or Japan, where the recessionary trends first appeared, but contrary to recovering, the situation seems to reflect the bottom dropping out. If this simultaneous worldwide recession worsens, you could expect it to continue for some time.
Incidentally, in June when I participated in the Harvard Business School regular alumni reunion, I often heard the word "cycle." This may sound obvious, but I have strong memories of instructors sounding the alarm for everyone, saying, "Don't forget that the economy goes through cycles." What is happening in the U.S. now is the same as what happened in Japan when the bubble was at its peak and people believed it would just continue. Americans seem to have forgotten the inevitable cycle of "what goes up must come down."
I am fundamentally an optimist, but just this one time, when I calmly consider the situation, I really do believe that the chances of a simultaneous world recession are high. Business leaders must constantly imagine the worst possible scenario and be prepared for it. I think we are now in a period that will require strong, ongoing navigation.
Yet, even an era with all these upheavals could present unprecedented opportunities, and I'd like to take the time to discuss them at some point. However, I can't help praying that a simultaneous worldwide recession will not happen, and that all these thoughts are just irrational fears.