Innovation Management 

The Best Way to Predict the Future: Read The Dynamics 

By Shlomo Maital



EURO ECG terminal doom loop

Peter Drucker’s famous quote, the best way to predict the future is to create it, has become a worn cliché.  And it’s probably one of his least pragmatic sayings – very few of us can truly create the future, or even shape it significantly.

    Yet, we still can predict the future – by ‘reading’ its dynamics.  Here is what I mean.

    Europe, led by Germany, has been doing a long and futile dance with debt-ridden countries like Ireland, Greece, Portugal, even Spain.  Greece and Ireland got bail-outs that really bailed out major EU banks and put ordinary citizens into deeper debt.  Where is this heading?  What is the future of the euro?

     Let us ask, what is the key dynamic at work here? It is this.  Interest rates all over the world are rising. They have to, after years at rock-bottom, and as inflation gains.  Against the background of rising rates, bond markets are becoming more and more panicky about Greece’s ability to avoid defaulting on its bonds as they mature.  When this happens, the interest rate on Greek borrowing rises.   This, in turn, makes it even harder for Greece to pay back bondholders by borrowing new money – which is the only way Greece can avoid default.  So this makes the bond market even more nervous.  …and so on.  In system dynamics, this is known as a doom loop.  And it is driving events as we speak.  Higher interest rates increase fears of default, leading to higher interest rates, leading to more fears of default, leading to even higher interest rates…and so on. 

    Ireland’s Transport Minister let the cat out of the bag, by saying Ireland would probably need another bailout.  (The Finance Minister quickly denied it, but it was too late – Ireland’s doom loop was set in play).  Greece obviously needs a second bailout – and then a third.   At some point, Germany is going to say, enough!  And at last, when Greece restores its drachma and its sanity, the doom loop will end.  When Ireland stops scalping its citizens to reward greedy bankers, the doom loop will end. 

     When we read its dynamics clearly, the future can tell us now, in the present, where it is heading, or at least where it is heading if current trends persist.  Ask, what is the dominant driving dynamic ‘loop’ now at play?  Is it doom or boom? If boom, is it sustainable?  If gloom, how does it end? 

     These words are turning my hair white, because the driving ‘loop’ here in the Mideast is definitely not a serene one.