Macroeconomic Economics

Example1 What would happen if the U.S Dollar stopped being the global currency?

A global currency or a reserve currency is a currency that is accepted for trade throughout the world. Other such currencies that make the cut are the euro and the yen. 

Of these, the U.S. dollar is the most popular. As of the third quarter of 2018, it makes up nearly 62 percent of all known central bank foreign exchange reserves. That makes it the de facto global currency, even though it doesn't hold an official title.

The power of the U.S. dollar depends on its use as a global currency. This itself is backed by the power of America's economy. Around $580 billion in U.S. bills are used out of the country. That is more than half of all dollars. 

Therefore, the dollar is like the ultimate currency. Most global contracts, especially those for oil, are made in dollars. Many large economies, such as China, Hong Kong, and Singapore, peg their currency to the dollar. When the dollar weakens, so do the profits of their exporters. These countries also hold large deposits of U.S. Treasurys. In theory, they could sell their holdings and cause a dollar collapse. But that's not in their best interest. Why? 

 In 2009, China and Russia wanted to create a reserve currency that was independent of individual countries and thus, could remain stable in the long run. 

I guess my question is two-fold: is it smart to create a reserve currency that is independent of all nations? How would that work? And secondly, what would happen in global markets if U.S.A stopped being the reserve currency?

 Source:   https://www.thebalance.com/world-currency-3305931

Example 2 What will happen to the economy once all baby boomers retire?

Baby boomers refer to the dramatic increase in birth rate between 1946 to 1964. Baby boomers have affected the market economy in more ways than one.

Baby boomers have shaped the focus of companies from anti-aging products to real estate, and healthcare. They have created trends in the industry allowing for companies to take advantage of them from a marketing standpoint. Businesses target their market towards goods and services to cater to the needs of baby boomers such as medical services, affordable care homes, and etc. By investing in the baby boomer effect businesses have been able to become more profitable. 

There is a concern that baby boomers will put a strain on the social welfare system. The average baby boomer has less than ideal retirement income. This means that baby boomers have to look elsewhere to get these funds. This causes a big shift in the financial market. Social security costs are projected to rise as retirement age increases.

Baby boomers are living longer than generations before them. This affects the labor market because they are staying in the labor force longer and jobs that normally would go to the next generation no longer do. As baby boomers retire consumer spending will decrease because retirees produce, consume, and spend less. However, this also means that younger generations will be able to find work more easily and unemployment rates could decrease.

Baby boomers affect the economy in both negative and positive ways. What will the future of the economy look like when all the baby boomers retire? 

 Source: https://www.investopedia.com/articles/investing/080614/boomers-slow-down-will-economy-follow.asp

Example 3 Is national debt a huge deal?

The national debt is the money government owes to the public and other governments. Currently the US national debt is $ 21 billion. The government spends its budget on unemployment and labor, social security, food and agriculture, veterans’ benefit, transportation, military, education and etc. Government uses tax money to pay for these expenses.

National debt is the result of spending more than earning. In the short run, debt can help boost the economy and governments purposefully impose expansionary policies to increase spending to force people to spend money. But in the long term, this policy can result in a huge debt which can hurt the economy. A larger debt increases the interest rate, therefore, investors will no longer invest and borrower will no longer borrow due to the high risk and belief that they may not be repaid in the future. This can slow the economy, as a result employers will hire less, people will spend less, and eventually it can cause a recession. 

US has a very large national debt, and it has accumulated over the years. Over the years US government imposed the expansionary policy to recover from the recession which increased government spending, later tax cuts caused budget deficit, and the healthcare package and the military spending caused the government to borrow more money and not be able to pay it back. One reason that US has not gotten into trouble for its debt, is that investors still believe that they will get their money back. 

Now my question is whether the government should consider the national debt as an issue, or it will resolve by itself?  

 Source:  https://www.thebalance.com/the-u-s-debt-and-how-it-got-so-big-3305778