Global economy..what are the main threats today?
Answer:
A selection:
An epidemic like Avian Flu could bringing the global economy crashing down.
Global warming could change the climate and devastate production.
The demand for natural resources could outstrip supply.
Natural diasters eg an earthquake in Tokyo or a large comet hitting the Earth.
Terrorist attacks on major targets.
Revolution in China.
Nuclear activity eg involving North Korea.
More prosaically, the risk premium in asset prices appears to be very low: credit spreads are narrow, equity prices high, bond prices still high in many cases. A sudden snapback could cause severe distress to the financial markets and hence a shock to the global economy.
Question 2: Exchange rates are just the relative price of currencies. Wont cause problems of their own unless they move very suddenly. Its important to remember that exchange rates dont really move of their own accord - they move because of changes in other things: relative inflation or interest rates, trade imbalances or capital account flows. So when exchange rates change a selection of other things are changing as well. You need to know why the exchange rate has changed before saying what the impact might be so its never simple. But generally an exchange rate changes to make the demand and supply for a currency equal at that rate. Some people argue that a weak exchange rate makes an economy more competitive. It doesnt really - strong economies usually have strong exchange rates. There is a lot of false analysis about exchange rates because people do partial calculations - so I wont add to that here! think of the exchange rate as a transmission mechanism for shocks, not the cause of a shock and you'll be on the right lines.
"Global warming"
Stronger currencies----- higher imports
Weaker currencies------Higher exports.
Devaluation of US Dollar
Global Economy impact for us in the U.S.. Our big businesses go to other countries and take advantage of there land and workers for high profits. In-turn it lowers wages and living conditions in the U.S.. Rather that bring middle America up it will eliminate it. If you don't believe me just watch and see.
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