Investing in America amidst an Economic Decline

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Last updated: February 18, 2019

The decline in the economy of the United States has been a cause of major concern for both the local and international markets. Much of today’s industries worldwide depend on the performance of the American economy to a certain extent, thus either a decline or progress in the U.S. economy will eventually affect negatively the status of companies especially those operating within the United States. Nevertheless, industries outside of America but trades or deals with America can benefit from the indicators of the decline in the U.S. economy such as a weak dollar or a weak stock market. It is best to invest outside of the United States but target the country as the market when the country is in an economic decline.

One way to do this is to invest in outsourcing certain types of goods and services to America.Higher inflation rates or the excessive increase in either the credit or the supply of money in America has generally led to the substantial increase in the general prices of commodities and other goods in the local market of America. The devaluation of the dollar contributes to higher inflation rates, especially in the cases of imported goods and imported raw materials from foreign markets (Chattopadhyay, 1994, p. 12).

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For the local investors operating within the United States but imports their materials for production outside of the country, a higher inflation rate means higher cost for the purchase of these materials since trade is usually conducted in terms of currency exchanges. The devaluation of the dollar tips the scale in favor of the foreign currency; meaning, as the dollar weakens in value, foreign currencies gain a stronger value in comparison to the dollar. In effect, the industries that produce goods locally but require the purchase of imported materials for their operation would have to adjust the prices of the goods and services they produce just to compensate for the higher expenses brought by the currency exchange adjustments. In some cases, companies can opt to lessen their production levels in order to address the effects of higher inflation rates.

On the other hand, foreign companies who already have established business trade with local American companies can further maximize their financial benefits from the decline in the U.S. economy adjusting their capacity for production output. For example, a Japanese company can choose to increase the quantity of raw materials for automobiles that it sells to local American automobile companies if the American companies decide to increase their production of cars in order to compensate for their probable loss in revenues from car sales both locally and internationally in the face of the economic decline in the U.S.

Or the same Japanese company can choose to lessen the quantity of automobile parts they produce and ship to America in order to further lessen their expenses for production while the currency exchange rates between the American dollar and the Japanese Yen is tipped in favor of the latter currency. That way the Japanese company can maintain the amount of revenue it generates from foreign trade even if it decides to lessen its production output. Either way, the decline in the U.S. economy is enough cause for foreign companies trading with America to adjust their trading performance in order to maximize the financial benefits.As it can be seen, a country with a declining economy is not usually the best place to invest since there is the possibility that the investments will not perform well primarily because of the high cost of materials and, thus, the high cost of goods produced and of the high probability of low return of investments due to the low consumption or sales of goods. The low consumption of goods produced can be attributed to the higher inflation rates where the prices of goods and services are high while the local currency has a low value.

Given these conditions in the United States, the best place to invest is not inside the United States but outside of it while retaining the U.S. as the target market—the move typical to that of the outsourcing industry (Cooper, 2008, p. 142).Investing in countries outside of the United States but with the U.S.

as its target market has its advantages and disadvantages both in the present and future contexts. For example, an outsourcing company based in India has the advantage of amassing manpower or human resources with less cost compared to the cost of manpower in the United States (Azhar, 2007, p. 6). Since the outsourcing industry is an industry that undertakes the obligation of a contract signed by another company or individual—which is also the outsourcing company’s client—in order to lower expenses, the cost of human resources is a significant factor to be considered. Cutting costs in terms of cheap labor contributes to the growth of the investment in the long term.

More importantly, establishing an outsourcing company in countries other than America such as India has the financial advantage brought about by the weakening of the dollar as the United States is retained as the primary target market. Currency rates between the U.S. Dollar and the Rupee, for instance, in the face of the weakening economy of the United States tilts the favor to the Indian currency (Crosby & Otto, 2000, p. 241). Thus, transactions and other purchases through the weakening U.S.

Dollar between American markets and Indian outsourcing firms eventually translates to an increase in profit in terms of the higher exchange rate for the Rupee. In order for American companies that depend on these outsourcing services to continue their business operations, it is an imperative to carry on with their dependency on the Indian outsourcing sector because of the cheaper cost of labor.Another advantage of investing in other countries while the U.S. economy is in a state of decline is because that declining status of the American economy highlights the presence of growing economies in other parts of the world.

China is perhaps the best example to this case. With the growing competition between Chinese and American industries, the decline in the U.S. economy results to an advantage of the Chinese firms over the American firms. Although it can be said that these two countries nevertheless engage in huge imports and exports between themselves, the weakening of the U.S.

economy and the strengthening of the Chinese economy through the past few recent years indicate that it is better to invest in China than in America for reasons of securing profits from large investments and securing the growth of the company in the years to come.On the other hand, one disadvantage of not investing in the United States as it faces an economic decline is that investors might not be able to take advantage of the fiscal measures promoted by the U.S. Federal government in order to stimulate the economy back to life. One of these measures taken by the U.

S. Federal Reserve is to augment its direct lending—the direct transfer of funds to the ultimate borrower from the ultimate lender—to financial institutions so as to stifle the hesitation of banks to lend money to investors. Not investing in the United States necessarily means that the potential investors investing elsewhere will not be able to take advantage of the financial borrowings being lent by the U.

S. Federal Reserve, borrowings with lower interest rates which usually attract investors. Once the American economy has already regained its healthy status, chances are the Federal Reserve will resort to bringing back the interest rates to direct lending to its normal, if not higher, levels. Thus, while it may sound best not to invest in the United States due to its declining economy, investors will be missing the opportunity of establishing businesses in the American market through direct lending from the Federal Reserve at a time when the local market is being pumped back to its normal levels.It can be argued that not investing in the United States since its economy is in a decline deprives investors the opportunity to capitalize on or take advantage of the sliding down of the economy by putting up strategic business establishments that will make the most out of the situation. That is, the decline in the U.S.

economy is the best time to invest in real estate, for example, as housing rates and house prices have receded over the past few months in America. This goes to show that even with an economic decline, the United States still provides several investing opportunities for investors to take and capitalize on (Easterly & Fischer, 2001, p. 162).However, the advantage brought about by the low housing rates in the United States amidst an economic decline is only beneficial in the short run for investors looking forward long-term investments (Nowlan, 2008, p. 44).

Once the economy has already stopped declining and starts to shift back to its normal levels, the housing rates will steadily rise and the Federal Reserve will cut down on its direct financial loans and bring back the normal interest rates. While it is possible to invest in the housing industry in the United States in times of economic decline, it is still not the best investment to engage into since the prospects brought by the devaluation of the dollar and the increasing imports of America over its exports indicate that there is more business and more potential for growth in trade, especially in the case of the outsourcing industry. The long term viability of the outsourcing industry as the best investment outside of America while retaining America as the target market is more substantial as cheaper labor abroad greatly reduces capital expenses.It is best to invest outside of the United States since the country is facing an economic decline.

Moreover, investing outside of America but focusing on the American market as the target market is the best option in capitalizing on the economic decline of the country.ReferencesAzhar, A. (2007). Text 100 defends India ‘outsourcing’. B & T Weekly, p. 6.

Chattopadhyay, S. (1994). Inflation, Stagnation and an Alternative Approach to Planning. Social Scientist, 3(5), 12.

Cooper, R. N. (2008). Economic, Social, and Environmental; The Accelerating Decline in America’s High-Skilled Workforce: Implications for Immigration Policy. Foreign Affairs, 87(3), 142.Crosby, M.

, ; Otto, G. (2000). Inflation and the Capital Stock. Journal of Money, Credit and Banking, 32(2), 241.Easterly, W., ; Fischer, S.

(2001). Inflation and the Poor. Journal of Money, Credit and Banking, 33(2), 162.

Nowlan, J. (2008). Not betting on housing. Industrial Distribution, 97(6), 44.;


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