Opinion – 4 December 2011
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Certain crucial matters influencing financial markets
by Sophie Kinsella
Author’s Bio:
Sophie Kinsella is a contributory guest columnist for various websites and communities including Oak View Law Group and CMFA . She has completed her Graduation in Finance and is currently working with an Investment company located in California. She has written some great articles on topics like bankruptcy, investment opportunities, debt settlement Texas, ovlg reviews and many more.
The actual worth of the US dollar has dropped nearly 20% in the past two years. With a rise in the US government debt and a shift of the equilibrium of world economic authority away from developed countries, this decline has led to speculation about the impending demise of the US dollar as the world’s reserve currency. While it is admitted that the universal reserve currency system ought to develop in order to give a better reflection of the word’s basic economic structure, the evolution will take some time.
Inflation
Inflation is usually defined as an increase in the universal level of prices. Whether at the local grocery store or at the gas pump, you have probably noticed a significant rise in the costs of some goods. When prices soar, apprehensions about “inflation” grow further. Soaring consumer prices eat into the purchasing power of a fixed-income investor, and create insecurity for equity investors, entrepreneurs and producers. According to Dennis Lockhart, the President of Atlanta Federal Reserve Bank, the rate of inflation covers all costs. It is the actual reason behind the deteriorating domestic procuring power of money. Therefore, elevated consumer prices are the indicator of inflation and not the reason. Inflation hampers the procuring power of money, and consequently prices of all commodities in the market are higher.
The Euro zone debt crisis
The catastrophe in the Euro zone originates from countries whose expenditures are much larger than their revenues. Furthermore, these are expenses that can no longer be carried on in the short, intermediate or long-term. As a disintegration of the Euro zone becomes quite probable, economists are beginning to make a sketch of the post-Euro world. Many are of the view that unless the political leaders alter their ways, a division of the Euro zone would push the US and the remaining world into probably another recession. According to Tilford, a disintegration of the Euro zone might result in several negative consequences for the American economy and rising economies in particular. As investors escape for security in the US, the worth of the US dollar would increase, resulting in expensive US exports and causing their transactions to drop, he said. Budding economies would also go through a sharp slowdown, since they are reliant on Europe for financing and customer demand for their commodities.
US debt ceiling
As many politicians and economists are of the view that the debt ceiling requires to be raised in order to shun economic disaster, the debt ceiling of the government has been the issue of heated argument in Washington. In spite of the fact that an increase in the debt ceiling would only provide with a temporary respite, people who are in favor of such a move give too much importance to the effect of debt ceiling. While some economists feel that the new debt deal may damage an already flimsy recovery from recession, others are of the view that it’s an excellent news for jobs. They see the modification in the size of the government as a factor behind revitalizing the morale of the private sector.
