Rising oil prices have a major impact on consumption. Those that are interested in stock investing have seen first hand the effects that higher crude prices and supply disruptions have on the economy. These events have led to higher prices for many goods and services. The slowly recovering consumer is under more pressure and may go into hibernation if prices continue to rise. The following guest post takes a look at international events and how they can affect your wallet.
Over the last few months, many Americans have watched the upheaval in Libya and the rest of the Middle East increase daily. As tensions and conflicts have continued to rise throughout the Middle East, consequently oil prices have risen. However, as many households focus on the increase in food and gas prices when preparing their monthly budgets, very few are considering how the recent disaster in Japan may negatively impact the U.S. economy.
Japan is the world’s third largest economy and the fourth largest international trader. The recent earthquake has caused a large economic disruption, as Japan will now limit the products it imports from other companies. This results in lower sales and lower profits for companies that usually do business with Japan.
What Does Japan’s Recent Disaster Mean for Investors?
If you have invested in companies that do a great deal of business with Japan, have invested in international bond funds or currencies related to Japan, you can expect to see a slight decrease in return. However, if you have invested with companies that normally rivals major Japanese firms, you may see your returns grow as these companies gain the business of currently hindered Japanese companies.
The biggest concern investors should have regarding the recent disaster in Japan is the affect it may have on the bond markets. The worst case scenario would be that traders, who significantly impact the bond markets, respond to the current panic seen by other investors and turn bearish. Should this happen, bond yields could rise dramatically, which would diminish borrowing and could potentially cause another recession.
How Could the Disaster Affect My Wallet?
Although another recession is seen as unlikely, if another were to occur, those in the U.S. could expect to tighten their budgets even more. Unemployment could grow beyond nine percent, while the costs of commodities, such as food items and oil, would still carry high prices.
Either way, American should continue to budget wisely. Gas prices will continue to stay high, as will food prices. The cost of certain goods, such as electronics, may also rise, since these items, which were once imported from Japan, may have to be imported elsewhere at a higher cost. Business services, which also relied on Japanese goods for daily operations, may impose a price increase as well.
As you can see, these international incidents have a direct impact on the United States economy. They affect the price that consumers pay for products on a daily basis. They also increase the input costs for companies making production more costly which squeezes profits.
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