The World Economy
The relationship between world economies could be dramatically seen in recent days with the instability in Egypt and the effect on U.S. markets. On Friday, January 28th, the Dow Jones dropped 166 points and the NASDAQ dropped by more than 68 points, a substantial drop. The sheer size of the Egyptian economy, and the country’s close ties to the U.S., factored into this response as seen in the markets. That same instability caused investors globally to seek the safety of the U.S. dollar and Japanese Yen. The country’s control of shipping channels was a concern that led to an increase in the price of a barrel of oil.
If it happens there, it is felt here
What happens thousands of miles from home can have a dramatic effect on local securities markets that affect us all. When the stock market is down, it’s not uncommon for 401k plan balances and IRA balances to be down also. When the price of a barrel of oil goes up, Americans can expect the same at the gas pump. We looked at this relationship with China and its impact on the U.S. economy. The foreclosure crisis in the U.S. affected the global economy and events in Egypt and China impact the day-to-day lives of average Americans.
For people living in other countries outside the U.S., much of the recent turmoil in places like Tunisia and Egypt had much to do with food prices. The bad flood that residents in Australia have experienced in recent weeks can affect food crops there and by extension, the consumers in other countries that purchase those foods. Greater demand for food, in countries like China, where discretionary spending has increased, has meant that the global supply of food is decreasing.
It becomes easier to imagine that the sub-prime mortgage crisis, that has impacted U.S. residents, can and did have consequences far beyond our shores.
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