Honoring Sacrifice, Understanding Impact
By Kevin Swanson, CFP®
05/21/24
Memorial Day has become a day marked by patriotic gatherings, pool parties, parades, and barbecues. And while patriotism, freedom, and love of country are certainly good reasons to celebrate, let us not lose sight of the solemnity of the holiday — a day set aside to honor the men and women who sacrificed their lives while serving our great nation.
Wars and the economy are intertwined
As Americans celebrate our country’s freedom and strength this Memorial Day, we’re painfully aware of the wars raging halfway around the globe. As with any war, we acknowledge the loss of life is tragic, and we don’t intend to minimize that. But for the purpose of this discussion, let’s focus on how global conflicts affect the economy and financial markets.
Generally speaking, geopolitical tensions pose significant economic risks. At minimum, these conflicts breed uncertainty, dampen investment sentiment, and can have inflationary effects, especially in energy markets. But wars typically have far-reaching economic effects as well, particularly in regions critical to global energy and food supply. On a broader level, escalations can disrupt vital supply chains, like the recent attacks that prevented shipments through the Suez Canal.
Other factors affecting the global economy
In addition to geopolitical unrest, other factors are also punishing the global economy. The recent sharp increase in global interest rates presents significant challenges, particularly for developing economies with weak credit ratings. Elevated real interest rates, combined with high debt levels, could strain economies further, potentially leading to financial stress and reduced global growth.
And while climate change has become a politically charged topic, its effects are a potential economic wildcard, blind to party lines. For example, if climate change continues to constrain global trade routes and increase the frequency of natural disasters, the results could impede economic growth and exacerbate poverty.
Signs of global and domestic resilience
Despite the daunting economic challenges of wars, surging inflation, and significant interest rate increases, the global economy demonstrated resilience last year. The U.S. economy was particularly resilient and played a significant role in stabilizing the global economy — even with our economic slowdown.
Although this resilience is encouraging, it does not signal an end to the risks posed by ongoing geopolitical tensions and economic uncertainties. That said, economists are expecting the U.S. economy to experience continued growth, particularly if the labor market remains robust. And if these predictions are correct, an expanding U.S. economy could be the impetus for global economic growth, without reigniting inflationary pressures.
Reflect on the past, approach the future with hope
Understanding that global economic stability is directly affected by geopolitical conflicts, we’re carefully monitoring wartime events and their effects on the markets. Yet we’re hopeful that America’s economic strength can continue to bolster the global economy until the warring parties reach peaceful agreements.
This Memorial Day, amidst the patriotism and celebrations, remember to take time to reflect on the point of the holiday — sacrifice. We have reason to celebrate because people were willing to serve our country, protect our freedoms, and sacrifice their lives. And this heroic sacrifice is foundational to the strength of our great nation, past and present. Let’s not take that for granted.
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