Write a note on relationship between war and economy.
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Answer:
Many factors have contributed to geopolitical tensions in 2017, but the threat of nuclear war has to take the top spot on the scale of concern for investors and citizens. A belligerent President in the White House has done nothing to pacify global tensions and when you add a weapons-crazed despot into the mix in the form of North Korea’s Kim Jong Un, it makes for jittery markets, writes FXTM Senior Staff Writer, Nikola Grozdanovic.
The dollar index, which measures the USD against a basket of other major currencies, has shown that the dollar is taking strain. Many forex traders have lost confidence in the USD and have been toggling between safe havens like gold and the Yen, and even cryptocurrencies like Bitcoin have benefited.
Over the course of the year, Trump has not minced his words about his disdain for policies adopted by his global counterparts, which he believes may adversely affect the U.S. His litany of tweets and his unreserved rhetoric in media interviews, targeting China, Syria, Russia, Canada, Mexico and North Korea, has put international markets on high alert. The most heated of the arguments that he has precipitated, is the escalating spat with Kim Jong Un, and for the first time in decades, the U.S. faces the threat of war on its own turf.
Kim Jong Un has conducted his sixth nuclear missile test of the year in early September, and his narrative is that he is prepared to take the U.S. head on. These increasing tensions are raising questions about a possible war. While most people are worried about the impact on their safety, economists are speculating on the impact it may have on global economies. In the past, there have been many missives and academic papers on the merits of war for an ailing economy, and while some old school thinking still prevails, the consensus is that war is a bad idea.
Many economists have used the United States’ recovery after the Great Depression, as an example of how war can revive a flailing economy. This case study was required reading in many economics classes. The U.S. recovery post-WWII was attributed to declining unemployment rates, increased spending, and a re-balancing of supply and demand after the country underwent its worst ever economic period. However, not all areas of the economy benefit from war, the WWII case study has a fatal flaw, because it does not take into account where the extra money would have been spent if there was no war.