Stories of global affairs dominate the news cycle. Whether it’s confusion over Brexit or the dismal industrial numbers reported from China, one question always looms: How do these external circumstances affect us in the United States? We will answer this question by presenting you the following scenario.
Imagine for a moment you are the benevolent ruler of a village. The land around your village is perfect for growing corn and the citizens in your town are expert corn growers. In a neighboring village to the East, the people are skilled at trapping animals for their pelts, “Fur-Town.” Considering that your people need to stay warm and their people need to eat, you trade your excess corn for Fur-Town’s excess pelts. To the West of your Village is another village in which the people build quality canoes, “Canoe-Town.” If you owned some canoes, you could use the canoes to travel and spur trade with more nearby villages. So, you trade your surplus corn for Canoe-Towns surplus canoes. The trading of these goods results in a situation that benefits not only you but your neighbors. Your village now not only has corn, but pelts to stay warm and canoes to travel in.
One day, in Fur-Town, a revolt breaks out. The leader of their village is overthrown. Speculation looms over whether the new leader will be open to trading their pelts to your village at the same cost. Coincidentally, at the same time over in Canoe-Town there is a shortage of lumber to make canoes. The result is higher costs for canoes. Both of these occurrences begin to cause unrest in your village as your people wrestle with what action to take in response to these events.
Yes, your people could try to trap animals and build canoes. Unfortunately, that requires training and resources which are currently spent on doing what your people do best, growing corn. Or, your people could spend more of their corn keeping warm and buying transportation. If issues in neighboring villages are not resolved, your people will suffer the consequences of change.
While the current global situation is more complex than this analogy, the basic premise remains the same. Bearing in mind the unrest with Brexit and China’s current manufacturing slowdown, the premise of the story rings true. Instead of trading and fretting about circumstances overseas, metaphorically, we in America could attempt to trap our own pelts and build our own canoes. However, this would cost us valuable time and resources. Thus, reducing our standard of living. In this scenario, we will most likely have to spend more capital to maintain the same standard of living.
Although the world of economics appears confusing, basic principles still apply. We are closely monitoring the financial climate at home and abroad. Do not hesitate to contact us with your inquiries.