The U.S. and the Global Economy

The current economic woes have affected economies around the world. When U.S. stocks tumbled following the collapse of investment giant Lehman Brothers and troubles at insurance monolith AIG in 2008, the devastation on Wall Street reverberated around the globe. Within hours foreign markets began a downward spiral, and it’s been a roller coaster ride ever since.

Globally connected

There are a number of reasons why Wall Street has a domino effect beyond our borders. One contributing factor is that over the years, as global trading and foreign investments have increased, world economies have grown increasingly interdependent. U.S. companies are heavily invested in foreign markets, and vice versa, making us all vulnerable to international events that affect stock values, which can include everything from political upheavals to natural disasters, poor investment decisions, fraud and more.

Overseas operations

The United States has also become less financially insular as more U.S. companies have expanded their overseas operations. We’ve all read the media reports about manufacturing, customer service and technical support jobs flowing overseas, further globalizing businesses.

Due to advances in technology and financial infrastructures, businesses are able to move more quickly. Reliance on electronic financial transactions, which enable lightning-fast debits and credits, have removed buffers that once helped delay and sometimes temper the reaction of markets when the world traded at a snail’s pace. Improvement in the transportation of goods has also helped accelerate the interdependence of global economies.

Government efforts

The U.S. government is influential as well. With influence comes control, and the U.S. has prided itself on being an economic superpower for the last century. According to the Federal Reserve, the U.S. dollar is the most preferred transaction currency around the globe, accounting for half of the world’s foreign exchange reserves, and the U.S.
Treasury would certainly like to keep it that way. The Federal Reserve regularly conducts financial business with foreign countries to intentionally boost the value of the dollar.

If the fragility of the U.S. economy gives you jitters, your concerns are not unfounded. Our business community needs to work harder than ever to ensure that innovation and free enterprise prevail, create jobs and bolster demand for U.S. goods and services. For the U.S. to continue to prosper, we need to excel in every way, including productivity, foreign relations, fiscal policies, health care, education and more.

Despite recent events, history shows the cyclical nature of the stock market and points to a strong likelihood that we will weather this financial storm and come out on the other side stronger. As fear subsides, confidence should return and help American businesses get back on track toward rebuilding the U.S. economy and thereby improving the global economy.

The strength of the U.S. economy depends on the willingness of consumers to spend and invest in American businesses. Talk to your financial advisor to discuss your financial goals and your risk tolerance before you invest. You can diversify your portfolio by choosing from an array of U.S. and foreign investments that match your risk tolerance and time horizon that are balanced to help you avoid excessive exposure to one class of investments.

AJ Jugan and Brian Stumpf are financial advisors and Certified Financial Planner™ professionals. Andrew (AJ) can be reached by calling (412) 635-5818 or emailing andrew.m.jugan@ampf.com. Brian can be reached by calling (724) 799-2782 or emailing brian.d.stumpf@ampf.com.