After the 778 point drop in the Dow yesterday, perhaps the US government and citizens will start to accept just what kind of financial crises we are heading toward.
While this instability in our market is unsettling enough, the effect seems to be moving outward into a global phenomenon, per economists. From my own observations, there are certain basic economic facts that are just not working.
During my trip to the UK and Europe this past summer, I paid careful attention to the conversion rate because nearly $2 were equivalent to one British pound, and $1.50 was equivalent to one euro (although rates recently have improved in favor of the US dollar). In other words, we as Americans were paying double or nearly double for every pound or euro we spent abroad this summer.
Now I understand the basis of monetary conversions. Whatever it costs for someone in the states to buy a loaf of bread, for example, is compared to what it costs for someone in another country to buy the same or similar product. Therefore if it cost me $2 to buy a loaf of bread here, and that same loaf of bread would cost 1.12 British pounds or 1.41 euros abroad, the spending capacity of my money becomes a particular ratio to the money of other countries. Simple enough, or so I thought.
When I was purchasing items or services abroad, all the numbers were the same. For a hypothetical example to illustrate my point: a cup of Starbucks coffee here cost $2.99, but in the UK it cost £ 2.99. Now if you take away the monetary symbols, the numbers are the same, true, but that’s not how economics is supposed to work. When you are purchasing an item in the states for $2.99, with the current ratio of what the dollar is to the pound, then a cup of the same Starbucks coffee should be £1.67.
Granted, I am not an economist, but I am fairly well educated on understanding how logical equations are designed to work. This simple observation I noticed while on holiday is just one symptom of a worldwide epidemic.
There are no quick and easy solutions to our economic problems, regardless of what any political party member or candidate is saying, (remember this is an election year here in the states, so delegates may feel a little more boisterous with making their statements). These problems have been building for decades, and for the most part politicians have taken steps to treat the symptoms but not cure the disease.
Is there indeed a cure? The optimist in me wants to believe that there is, but with such a multifaceted problem that is interlaced with a polarized political system, international concerns, military agendas, etc., I’m not sure if there is a single cure that will guarantee that the state of our economy will rapidly improve.
Please do not misunderstand me. I do not mean to say these words to encourage that we should do nothing. On the contrary — I think the citizens of the US and the world need to become active in understanding what their governments are doing and why such things as simple economic logic is not being applied.
For those of us who live in countries where governments are supposed to represent the people, we as a people should have the right to know what’s going on and what’s being done about it. Although we can’t expect change overnight, we should be able to visualize and discuss just how severe the problem is without any political spin or governmental red tape. From that information we should then create contingency plans to help us get out of this economic and political turmoil. We need to start the steps of improvement now so that our children will continue taking the steps we’ve created as well as creating new steps to improve for the future generations to come.