Does the Economy of a country directly affect how it’s people make, spend and invest currency?
In short, Yes and No.
Simplistically, Yes because as the word currency is defined it means passing from one to another. Derived from the word current with meanings which encompass, “as water flows” and, “what is up to date or current.” Therefore, currency has to do with what is moving right now.
(Side note, there are many forms of currency at play in your life.)
However, the real answer is NO, an Economy does not directly affect its People. Why? Because the People affect the Economy. Technically and literally, the Economy is a measure of what the People are doing with their currency. The Media loves to say the Economy is up or down, good or bad. What they mean by those assertions is, “things are changing,”
They are correct, things are changing; things are always changing.
There are certain metrics you can look at to determine if sectors of a market or markets are gaining or losing value. Those markets are made up of People and their decisions. THIS IS THE KEY: DECISIONS MAKE MOVES- THE ECONOMY IS AN INDICATOR OF THOSE MOVEMENTS. Like a leaf blown by the wind, the Economy moves because decisions are pushing it. The Decisions are the force pushing, the Economy is simply a leaf moved by those decisions.
The more People make a similar decision, the harder the force pressing on a certain metric or market.
Here is a short story to illustrate:
I lived in an area where a factory was employing several thousand People. The factory shut down and it’s Employees were either transferred or let go. The Real Estate market in that area took a plunge and houses lost over half of their value. In that area, at that time, it could be said the Real Estate market had crashed. Many People lost a great deal of money.
Some input on Real Estate Markets:
As a general rule, Real Estate values follow the local job market. I can personally attest this is not always true, but it is a good generalization. The three purported determining factors for Real Estate value are Location, location and location. This is because a property is considered more valuable depending on its access and availability to higher traffic counts or another similar entity.
When a factory moves in prices around the facility increase because more people want to be close to the facility and the traffic it generates. Other businesses move in to cater to Employees needs and an economy is created.
When the factory closes down the economy, if any is left, is a shadow of it’s former self due to lower demand.
This is not THE Economy crashing but AN Economy going through a cycle.
In simple terms each Person in that area made a decision. If they stayed, there was little money coming in so they had less to spend. If they left and took another job they spent their money as they saw fit elsewhere. This is currency- the movement based on decisions. Economy is the management of resources that determine the economic situation of an area. It is related to the currency of the local People’s decisions.
Why is it important to make this distinction?
In my studies of finances rarely, if ever, is the Economy stated unless it is to clarify a movement.
For instance, if People relocated to another region it would sometimes be attributed to a famine or, perhaps a new opportunity opened up in an area drawing a crowd.
Think of the California Gold Rush. It was so popular the People engaged in the pursuit were slapped with a moniker of the year they endeavored to strike it rich; The ‘49ers. Did they leave simply their previous life because they hoped to find gold? Or, were they leaving a bad situation trying to find a better chance? Each had their own reasons, but their movement created currency which formed new Economies. The Economy each 49er left was affected by their movement. It does not mean said Economy crashed or even was bad. For instance, speculators needed tools. Merchants purchased tools and shipped them to the California territory and made good money selling to Gold Diggers. This helped lift East Coast Merchants out of a slumping Economy. That movement created currency which improved the Economies of all (or at least some of) the parties involved.
In summation:
People make decisions.
Decisions create movement.
Movement creates a shift in currency.
Shifts in currency steer Economies.
It is important to clarify that People making decisions eventually drive Economies… as opposed to the Economy driving your decisions.
If you experience pressure in this manner usually it is a manipulation tactic employed by Persons or Entities hoping to drive People to make decisions that profits the Manipulator.