In the recent onslaught of terror attacks around the world, the emotional and physical impact is obvious. Images of vigils, memorials, and increased security are always in plain sight, even long after an event has subsided. But some of the less visible impact is on the economy. Expensive relief efforts, deficits from decreased tourism, and the heightening of security systems are all lasting effects of terrorism.
Barry Johnston and Oana Nedelescu wrote a 2005 paper called The Impact of Terrorism on Financial Markets which discussed the direct and indirect effects of terrorism on the economy. Investopedia discusses the major points of the paper here:
"The direct economic costs are shorter-term in nature and include the destruction of life and property, responses from emergency services providers, restoration of systems and infrastructure, and the provision of temporary living assistance."
The article goes on to discuss the long-term impacts:
"reduc[ed] productivity because of increased security measures, higher insurance premiums, and the increased costs of financial and other counterterrorism regulations."
Think about how much time you spend in airport security lines. All of that waiting costs money.
The terror attack of September 11th, 2001 cost the United States an estimated $3.3 trillion. The physical damage alone was around $55 billion, and the economic impact was $123 billion. For a breakdown of these costs, check out this infographic from the New York Times.
But September 11th was fifteen years ago, and now things could potentially be a more costly.
Laurie Laird of Forbes Magazine says that after the attack on Paris back in November 2015, the French CAC-40 index never dropped more than 2% the following Monday. But the tourism sector was truly hurting. While this ebb and flow is normal for the travel stock, increasing fears (especially in Europe) keep travelers away for the longer term. When the U.S. State Department issues a travel warning, a lot of people take it to heart and don't think it's worth the risk.
There are still a number of sources that say you should not be afraid to travel to Europe -- that your risk of being involved in a terror attack is statistically the least of your travel risks. David Cogswell reports on a statistic that you are 14 times more likely to die in your bathtub than in a terror attack.
Will fear and terrorism have a long-term impact on global economies? Perhaps. But this is what an economy is for -- to react to issues that occur in the world, to be malleable. That's why it's crucial that the upcoming November election lead to a President that knows how to handle the responsibility of a potentially volatile economy of terror.
To keep your finger on the pulse of the economy, check out CNN for the latest updates.
- Don't Hide From The Reality Of How Terrorism Affects The Economy ... ›
- The relationship between terrorism and economic growth: Research ... ›
- What is the economic impact of terrorism? | World Economic Forum ›
- The Paris Attacks And The Economic Impact Of Terrorism - Forbes ›
- Money talks: Terrorism and the economy | The Economist ›
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.