by Stephanie Berenbaum – December 3, 2010
Understanding the News One Story at a Time
Ever feel like you don’t really understand the headlines? Particularly financial headlines? Don’t worry, you’re not alone. A lot of us feel like we should understand more of what’s going with the world’s economy, but when the headlines sound confusing, we tend not to take the time or energy to stop our day to try and figure them out. So, we’re going to break them down Fab & Fru style…
International Econ 101
For instance, yesterday you probably noticed that NASA made an announcement on Alien life – but your eyes may have glazed over the headline ‘ECB Extends Special Liquidity Measures’. And while learning more about the European financial crisis (which is what that ECB headline refers to) might not be at the top of your list, you should take the time to get informed. In a global economy, what happens halfway around the world affects YOUR money – no matter where you are!
In a Nut Shell
The European crisis may excite all you world travelers out there that love it when the dollar is worth more than the Euro. But the reality is- if the Euro’s value continues to decrease, European countries will buy less American products and services. In essence, we lose customers which will seriously impact the American economy!
Here’s what you need to know…
What Is the ECB?
The ECB stands for the European Central Bank. It is headquartered in Frankfurt, Germany and headed by a man named Jean-Claude Trichet (sounds more like a famous French fashion designer to me). The ECB is, in short, one of the most important banks in the world. It sets monetary policy for the 16 European Union (‘EU’) Eurozone member states. Which begs the question, what exactly is the European Union? What is the Eurozone? And, no, they are NOT the same thing…
The European Union refers to 27 European countries which have formed an alliance, the most significant aspect being free trade among one another-thereby creating what is almost a single market economy.
The EURO and EUROZONE
No, they are not specialty coffee drinks. Many – but not all – EU nations have adopted a single, common currency – the EURO. The countries who have adopted the Euro are said to be part of the Eurozone. In other words, most – but not all – EU nations are Eurozone nations. The Euro is overseen by the ECB – which brings us back to our headline. And the reason the ECB was in the headlines is because it held an important meeting yesterday.
I know, it’s seems a bit like ‘Who’s On First’ but stick with me…
European Financial Crisis – Not Very Fab & Fru!
Just like the USA, Europe has been dealing with it’s own financial crisis (i.e. the bailout of Greece last spring and most recently Ireland). The ECB has been helping support it’s members financial states with a very liberal loan program to member banks. In addition, they have been buying bonds to help support member’s economies. Buying a bond is essentially another way of making a loan, for which you receive a certain interest rate in return. Bottom line: a lot of money is being loaned out by the ECB to keep member’s economies moving smoothly – which is what ‘liquidity’ refers to.| Print
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