A Truly Global Market

Many in recent years have pointed to a “global market” that has emerged in the past few decades. While this term is typically a reference to increased global trade and international economic cooperation, the expression is also becoming applicable to the status of the world’s economy. After several years of widespread economic boon, it is becoming clear that the status has shifted. This has occurred not solely in economic powerhouses such as the U.S., the Euro-Zone, and Great Britain, but in many of the emerging markets throughout the world. As I reported here, India’s rupee has been slammed recently, and many other up-and-coming economies’ currencies are sharing the rupee’s fate of late.

Until recently, one of the “hotter” currencies in the world was the Brazilian real. However, it is expected to experience significant losses in the coming months, along with the currencies from many other emerging markets. From this trend, it is clear that the effects of a “global market” are not all positive. Similarly to how they import goods, so too it seems that these growing economies import the economic health of the major economies. Despite having vastly different economies, many are suffering from the familiar problems of rising inflation, high commodities prices, and rising unemployment. In other words, problems that seemed so close to home for many Americans and Europeans are nonetheless beginning to afflict peoples halfway around the world.

Still, unlike the U.S., the Euro-Zone, and Great Britain, growth is not as severe of a problem for many of these emerging economies. Hence the central banks do not have the complex task currently facing the Federal Reserve and the ECB: rising inflation and decreasing growth. This will allow them to just focus on combating inflation, yet the obstacle of high unemployment may limit any potential effectiveness of their actions. With investors starting to exhibit a preference for investing in U.S. markets in lieu of emerging markets, these growing economies must figure out a way to solve their economic problems soon. Otherwise, it could take some time to entice foreign investors to return, which could make any recovery of currencies such as the rupee or the real a long, arduous process.

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