HOW WILL A GLOBAL ECONOMY AFFECT YOU?

We live in a global economy. That economy is becoming more and more globally inclusive each year. Small nations trade on the same playing field as large nations, while their equity markets intersect on an hourly basis.

No where can it be seen more clearly that we have succeeded in this global venture than in the global recession. In the past, when U.S. Markets were down, it was common to see foreign markets up. One of the reasons your financial advisor recommends foreign investments as a sector of your portfolio mix is because foreign markets used to provide downside protection in a down U.S. market. It is not apparent if foreign equities provide this protection any more, since current evidence points to the contrary.

If this new global economy actually succeeds, and you live in America, it is entirely possible that your standard of living will decrease. One of the benchmarks of a balanced global economy is a balanced global standard of living. Places like China, India, Pakistan, all of Africa, and South America should see a significant rise in their standard of living. Nations including Britain, Germany, Malaysia, the U.S., and Japan will see their standard of living either stagnate, or dwindle. This is necessary for a balanced global economy, even though it spells trouble for U.S. citizens.

Balance requires increase in areas of the world where poverty has been rampant, and decrease in those areas where wealth has been common. By wealth, I am not talking about being a multi-millionaire. I’m talking about things we take for granted; such as indoor plumbing, central electrical grids, transportation, gadgets and the like.

How will it affect you, if you live in America? More than likely, it will affect your pocketbook in the form of inflation, or your earning power in the form of deflation. It’s not clear which will occur, although if I were a betting man, deflation is what I would place my money on. The worst case scenario would be declining wages and grossly increasing inflation.

Is it possible that we are already seeing this in our current recession? It’s too early to tell, but beware of promises made by politicians. No one knows where all of this will end up. Your standard of living may not be affected all that much if we can keep wages growing. But you need to understand that in a global economy, balance must occur whether you want it to or not. We asked for this. Are you ready to deal with it?