global financialWhat are some of the formal global financial links that shape our everyday economic lives?
Regulating financial markets, like fixing the prime (and other) interest rate, which is done behind closed doors in the ivory towers of financial power, has a tremendous effect on our everyday lives. We know the impact, for example, of interest rate adjustments on savings accounts, bond investments, and mortgage and loan repayments, but the impact of financial regulation goes far beyond that even to averting or escalating national and global financial collapse. Case in point is the mid-night, closed-doors negotiation of the purchase of Bear Stearns by JP Morgan a few years back. The buy was negotiated, financial rules were manipulated and altered in order to avert what looked like an imminent national and domino-effect global financial collapse.
Another way in which our finances are directly affected is the when nations print money. In the past three years we have seen a serious increase in the printing of money from many nations. The United States drastically increased its money supply, Japan (3rd largest economy) has also printed money, and now the EU is thinking of this as well. The printing of money debases currencies. In other words, the money that we have is worth less, because there is more money in circulation. The very fact that gold and silver have rocketed of late shows that people expect more money printing.
Most of us think of banking and currency exchanges when we think about global finance and financial links, but international trade also creates financial patterns that certainly affects all of us on a daily basis. The shoes you are wearing as you read this post were almost certainly not made in the USA, nor was (most likely) the computer you are using to read this. The balance of trade between nations and the tariffs negotiated to control the import and export of goods definitely has a financial impact on our lives.
U. S. involvement in the World Bank and the International Monetary Fund is worth mentioning, but another important involvement is U. S. participation in the so-called Group of Eight (G8). Annual summits of the latter group are very important in setting long-term global financial goals and in dealing with immediate global financial challenges. The G8 tries to promote cooperation among the leading economies of the world.
Well, I think this question is particularly relevant given the financial crisis that the entire world is facing today. The relationship between banks and investors in stocks and shares, that has so little to do with your average citizen, clearly has been shown to have a massive impact on our everyday lives today, as the actions of a few irresponsible individuals have made life much harder for the rest of us.
The currency exchange markets affect our everyday lives, from the price of gas to what it costs us to shop at Christmas. It affects the prices of American exports to other countries and therefore sometimes directly affects whether or not we have a job or a market for our products. The value of American currency abroad also dictates how expensive international business travel and vacations are.
The amount of government securities (e.g. US Treasury Notes) owned by other governments is also a crucial link that explains part of the universal anxieties we read about every time a nation has its rating downgraded. They also, however, form a crucial link because they mean that governments have an interest in the fiscal and monetary health of other countries.
Essentially all of the money my wife and I have saved is invested in stocks and bonds. Because Americans invest in Europe and vice versa, I have seen the value of my portfolio bounce up and down lately as markets worry about the impact of the debt crisis in Greece or about whether the EU will be able to keep the euro sound.
There are formal agreements between countries around the world in regards to lender nations and debtor nations. How money flows back and forth between these countries and the various debtor countries ability to pay back borrowed funds affects the world economy.