Issues by Topic:

 

 

 

 

Economic Issues:

 

The Economic Crisis:

You may have heard your parents talking about this very stressful issue. Maybe you even know someone who lost their job because of the ‘recession’. Well, here’s what it is all about:

Different countries in the world use different types of currency. For example, the USA uses the dollar ($$), most of Europe uses the euro (€), and China uses the yuan renminbi (or the yuan) (¥). In the old days, money used to be based on real value, like a gold nugget was worth more than a silver nugget. Why? Because there was only a certain amount of gold or silver in the world. Today, any government could print as much currency as they wanted because we use paper money (which is not actually unlimited because it comes from trees, but that’s another issue!). So what is the value of our money based on? It is based on how much a country exports to other countries. If we export a lot, the value of our money goes up because that means we are getting money from other countries or companies.

Confusing, huh?!

The problem we are dealing with right now doesn’t make the story any simpler. The recession you hear your parents talking about was caused because governments (especially the US) and large corporations started spending a lot of money that they didn’t actually have.  Eventually, this caught up to them and many corporations either lost all their money and had to shut down, or they had to get ‘bailouts’ from their governments so that they could survive. The problem is, their governments didn’t have much extra money to give, so these countries had to cut back on their programs (factories, stores etc…). Also, the people who lent money to those companies (stockholders), stopped because they didn’t want to lend money to a company that couldn’t pay them back.

Why does that matter to normal families? It matters because lots of people worked for these companies, and when they closed or downsized people lost their jobs. When those people lost their jobs, to save their own money, they stopped buying things they didn’t really need, or buying things that were really cheap at big stores like Wal-Mart. That meant that people who owned small businesses couldn’t afford to keep their stores open because people weren’t buying their things. The cycle continued on and on, and today, around 10% of people in the USA don’t have jobs.

What do you think?

Should people hold onto their money to make sure they can support their families?

Should people keep spending so that the money can flow between people and try and spark the economy?

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The Currency War:

What is keeping the world in this recession?
Many believe that one of the major reasons the economy hasn’t sprung back is that there are certain countries that are controlling the value of their currency instead of letting it rise and fall based on how much they export. This all began when China decided to attach the yuan to the US dollar so that it would always be 20% lower in value.

Why would China want it’s currency to be lower than the USA?

It is a good question. The reason is, that if the Chinese yuan is of little value, then China will be able to sell its products for such a cheap price, that everyone wants to buy from them, and they end up making more money than they would for a higher price.

Think about it:
If one store was selling a hat for $10, and another store was selling the same exact hat for $2, you would probably buy your hat from the cheap store—everyone would.
This process is called devaluation.

For a while, the US tried to pressure China to allow the yuan’s value to be determined by their exports, but China wouldn’t budge. So, the US decided that they had no other choice but to devalue their currency as well.

What would you do?

If you were the store that had been selling hats for $10, and you see all of your customers going across the street to the cheap store, how would you solve your problem?

But let’s think some more:
What would happen if everyone lowered the prices of their hats?

Competition. There is a lot of fear right now that if the US and China (the top two economies in the world) do not allow their currency to rise and fall with the economy, a currency war will breakout. That means, every country will start devaluing their money and no one will be willing to buy from anyone else.

But what happens when no one buys anything?
No one makes money, and the economy collapses!

What do you think?

What would you tell the leaders of the US and China if you had the chance?

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