Month: February 2020

Will Brexit Crash The Global Economy?

Brexit may be the catalyst that crashes the entire global economy.

On June 2016, 17.4 million voters in England opted for Brexit. The UK official left the European Union (EU) on January 31, 2020. Areas effected include law enforcement, data sharing and security, aviation standards and safety, access to fishing waters, supplies of electricity and gas, and licensing and regulation of medicines. Currently, the UK is in a transition period till December 31, 2020 and must negotiate a new trade agreement with the EU by this date. If a trade deal is not negotiated, the UK could be facing tariffs to the EU.

How did Brexit happen? Because of the Great Crash in 2008, European debtor nations sustained severe austerity problems that lead to massive unemployment and economic malaise. In addition, political refugees from Syria, Somalia, Bhutan, Iran, and Afghanistan fueled massive racism as well as escalate social service spending. The growing divide between the rich and poor and racial tensions have stoked the fires of populism and anti-EU sentiment.

As a result of Brexist, the sterling pound should massively devalue. Unlike the last major sterling pound devaluation in 1992, the Bank of England this time around will not be able to cut interest rates to soften the severity of the devaluation. In addition, the UK has a current account deficit that it didn’t have in 1992 and is very sensitive to the whims of the global bond market. A vicious cycle will also be created by the sterling pound devaluation. The 27-countries of the EU will feel threatened by deflationary pressures from super cheap English exports and likely start a trade war with the UK.

In this nightmare scenario, the US after unilaterally altering the Iran deal will not have the ability to eliminate the trade war. However, the Fed will be able to lower interest rates to soften the blow of sterling pound devaluations. China current sits on a leverage bubble similar to the US prior to the Great Crash 2007; a EU trade war could bring down the Chinese economy.

Brexit is eerily similar to the currency devaluations in 1921 in Germany followed by the sterling pound devaluation that followed. Currency wars lead inevitably to tariffs and a breakdown in global trade and lead to the Great Depression in the 1930s.

The Source Of Money: Power

So the big question is this… if you grew up poor or middle class, how do you rewire your brain to attract massive amounts of money into your business?

My Uncle Jerry grew up in a poor middle class family in Hawaii. His first marriage ended in dismal failure and it seemed like Uncle Jerry lost his way. He went from meaningless job to meaningless job and ended up in Colorado Springs. In his mid 40s, a light bulb seemed to go off in Uncle Jerry. He started to read books and attend seminars like Tony Robbins. Uncle Jerry changed careers into sales. He remarried Nancy who thinks like a successful woman and he surrounded himself with successful people. Today, Uncle Jerry is considered rich. He worked his way up the corporate ladder to become VP in Sales at a major pharmaceutical company and lives on a mansion on the beach in Kailua, Hawaii.

From my observations in history, money seems to always go to those in power. The history of mankind has been a power struggle that includes wars (military build up and intelligence) and fierce competition to control monopolies. Somehow, Uncle Jerry went from being a man with no power to a man with power.

Schmid Mast defines power as “an individual who exerts or can exert control or influence over another person.” French and Raven explain “six bases of power” including coercive power (aka power by force), reward-based power (such as the ability to pay employment wages), structural legitimate power (like a government body), referral and influencer power, expert power and knowledge power (control over highly desired information). Uncle Jerry gained power by building his referral and influencer power, expert power and knowledge power.

Power attracts money.

However, studies have shown that power comes with negative effects as well. According to Deborah Gruenfeld at Stanford University, the feeling of power in ordinary people tends to reduce their empathy and leads to behavior where they objectify other people. These studies seem to validate the cliché that “power tends to corrupt.” Such is the sad state of our world where those in power more than anyone need more empathy. Yet power seems to reduce empathy in the brain.

Neuroscientists discovered that empathy and the social instinct derive from mirror neurons and spindle neurons in the brain. Darach Keltner found that power alters the neurotransmitter dopamine and noradrenalin.

One of the ironies of power is that the skills that gain power such as empathy and critical thinking diminish as a result of power.

In Barbara Tversky’s “Mind In Motion: How Action Shapes Thoughts,” the author shows that empathy and awareness of your environment like the non-verbal gestures of other people not only make you better communicators but also better critical thinkers. Thinking does not just occur in the brain, but rather in both the brain and the body. Tversky refutes the idea that thinking derives from language. She focuses on a variety of communication systems that transcend language, such as gestures, signs, maps, accounting, and music. For example, gestures from the body actually help us think. Abstract thought happens because of our ability to imagine the layout of objects in space. In other words, spatial thinking enables abstract thinking.

I’ll discuss more about the relationship between power and money on this blog. So this would be the first of many discussions on the topic to come. If you want to be a successful founder, you’ll have to master the art of gaining power. And hopefully, you won’t lose your empathy along the way. The world needs more powerful people who also have empathy. Regarding Uncle Jerry, I still can’t decide whether he lost empathy as a result of gaining money and power.

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