Yesterday’s market was very interesting. While every other market rallied because of China’s announcement on its’ stimulus plan, the United States indices stumbled. This make Tuesday’s market overseas interesting because markets around the world usually follow the United States’ lead. It’s no question that the US has been the global leader because of its economic power and willingness to lead, but will this continue?
Financial Power and Influence
Before the financial crisis, most of the major financial powerhouses were residing in United States. With 2 of the biggest investment banks now gone and most of the financial banks in the United States majority injured (did you see Citigroup’s stock price?), it is tough to say what will happen once its all said and done.
Government Economic Policy
The US has arguably the most sophisticated system in handling fiscal policies and the country. Before the financial crisis, everyone would say that the country has been doing a pretty good job at taming inflation and spurring economic growth. However, these days, it’s not as clear that our government knows what they are doing. China’s stimulus plan creates jobs, cuts taxes and creates growth. The United States’ plan? It gets people putting more money into failing banks, buying more TVs and maybe some iPods too.
Currency
Throughout history, the US dollar has been the currency in the world. It is commonly accepted to be one of the only currency that most countries accepted. Transacting business in the US dollar was considered to be a powerful statement back in the days. These days however as the US government borrowed massive amounts of money from China, the US dollar is simply over owned.
Another huge threat to the US currency is the creation of the Euro. In the old days, there just weren’t a currency backed by a stronger economy. Now with a currency handled and governed by the European Union, there is now a currency that is also widely used around the world.
Going Back to Stocks
So are stock markets still going to follow the United States’ lead, meaning that if our markets go up, they will and vice versa? We will see. I really hope so.
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