If you cast your mind back to the beginning of 2013, the world was gripped in the midst of an impending financial crisis. Just as nations’ throughout the Western world were beginning to recover from the impact of the Great Recession, it was announced that the previously agreed Budget Control Act of 2011 would be enacted as a way of forcing the U.S. to deal with its budgetary deficits and short-term debt measures.
Referred to globally as the fiscal cliff, this initially drove investors and Wall Street experts to distraction as they considered the potential impact of a federal government shut-down. Fortified by their experiences in the wake of global recession and sluggish recovery, however, they displayed a robust and resilient attitude that enables the markets to thrive even during the three months prior to the potential enactment of the Budget Control Act. So even though a last-minute was agreed to keep the U.S. from plunging into the oblivion, investors never really looked likely to become overly risk averse or stricken with panic.
The Crisis in the Ukraine: How Might it Impact on the Global Economy
While the current political dispute between Russia and the Ukraine may represent an entirely different type of threat, the level of discussion and concern it is causing across the globe place it on a par with the fiscal cliff. Certainly, the potential impact on European trade relations could be as significant as it is detrimental, especially when you consider that Russia controls 25% of the energy supply in Europe while the Ukraine also stands as the leading supplier of grain, corn and wheat within the region. A continued dispute between Russia and the Ukraine may not only cause the prices to rise significantly, but it could even cause exports to halt completely over time.
This is certainly enough to have investors running for cover, although the initial response once again seems to have been distinguished by patience and experience rather than overt panic. After all, the global economy has remained volatile and relatively unstable ever since the end of the Great Recession, and today’s investors are certainly well versed in the arts of executing profitable traders under extreme pressure. The current crisis represents an added and unusual dimension, however, and one that may yet have a hugely damaging impact on the marketplace.
This is the growing threat of sanctions being placed by the U.S. government on Russia, which was initially discussed by Secretary of State John Kerry last week. The notion of one top-ten global economy attempting to sanction another is almost unheard of, primarily because it has the potential to trigger a global political crisis and even raises the prospect of military action. This has certainly crossed the mind of Russian representatives, who would certainly consider responding directly and aggressively to any perceived intervention by America or the West.