Why Do Global Crises Affect the Economy?

Buchalter & Pelphrey

The concept of a "global economy" isn't as ominous as it sounds, but certain events can alter money value, the stock market, and inflation in other countries. From the Great Depression to wars and natural disasters, why do global events affect your investments and everyday life? Let's take a look.

Does the Global Economy Exist?

The short answer: sort of, yes. There isn't necessarily a formalized, unified global economy, but since industrialization in the early 1900s, commerce exploded globally, and almost every country and nation are now a part of a worldwide system.

The basic definition of an economy is:

"the large set of inter-related production, consumption, and exchange activities that aid in determining how scarce resources are allocated. The production, consumption, and distribution of goods and services are used to fulfill the needs of those […] within the economy."

So, a global exchange of goods and services and the use of scarce resources could be considered a (global) economy.

Think of it this way: cotton is cultivated in India, sold to China for manufacturing, shipped to the United Kingdom where the textiles become clothes, and from there, the goods are distributed worldwide. There are capsules of economic homogeneity like the European Union, which has a uniform economic structure. However, regardless of a country's membership in the EU, they still participate in global commerce.

So, why do global events affect the global economy?

A Ripple Affect

The conditions that create a semi-global economy are the same reasons why global events impact the American economy. For example, if there are droughts in the European Union, where wheat production is highest, then there will be a shortage of products containing wheat. If there are shortages, companies that have products made mostly or entirely of wheat may increase prices which causes consumers to panic about supply.

As history would suggest, consumer panic often leads to more economic trouble. The Great Depression was an American crisis, but the intensity of the stock market crash and the severity of poverty over the next few years caused a ripple effect for other countries. Inflation increased in Europe, and trade slowed down with eastern European and Asian countries during that time.

Economic crises can affect this, but natural disasters can also send the world into a tailspin. In 2011, a horrific tsunami hit Japan's shores along with a 9.0 magnitude earthquake. Hundreds of thousands died, and because of the tectonic shifts, a nuclear plant had leaks that could have poisoned the land and sea for hundreds of years if officials hadn't rushed to clean it up. Japan's economy suffered, and the damages were so costly that it made Europe reconsider total reliance on nuclear power, which meant that the nuclear sector took a hit financially.

The most obvious culprits for global economic change are wars. During the War on Afghanistan, gas prices rose and fell regularly because the oil fields were at the center of the conflict. The 9/11 attacks worsened an already freefalling economy suffering from the Dot Com bubble bursting and sent America into a recession. Now, the war in Ukraine can increase inflation in the United States. Already, gas prices are rising, and high food prices are getting higher.

There is only one Earth, and we all must share it. This means that while we prosper from global cooperation and commerce, we also suffer the cost of conflict, natural disasters, and people's suffering in other nations. In most cases, these crises are out of our control, even if they affect our daily lives.

So, what can we do to mitigate the economic shifts resulting from war, famine, disasters, and other global occurrences?

Protecting What Matters with Asset Protection

Whether you are an investor, one-percenter, or living paycheck to paycheck, a global crisis is terrifying. Things we rely on to survive sometimes become scarce, or the price makes them inaccessible to most. The smallest increase in food or gas prices could make life difficult for families across the United States, but there are ways to protect what matters.

One way to do this is through asset protection. As mentioned previously, most economic shifts are outside of our control, but you can take action to protect your investments preemptively, so if hardship does come knocking, you can rest assured that your finances are protected.

Asset protection usually has two steps:

  • An assessment of assets, risks, and financial goals
  • The creation of a plan that includes establishing structures like trusts and barriers between you and creditors.

Many options are available to protect your assets, from estate planning to business protection measures. Once your assets are protected legally, they are nearly untouchable in most circumstances, including creditor collections and probate court.

An experienced attorney can provide custom-fit strategies for your assets and guide you through the protection process so you can have peace of mind no matter what life throws at you.

Contact our attorneys at Buchalter & Pelphrey Attorneys At Law and put your financial future in good hands.
Let our family help yours.

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