March 15, 2022 Security

How Does War Affect the American Economy? 

While we all hope the war between Russia and Ukraine won’t spread, it impacts the global economy when major countries are at war. Here’s how it’s influencing the U.S. economy and banking, additional fallout that may be coming, and steps you can take to protect your assets.

How Does War Affect American Banking?

The U.S. Treasury Department has placed severe sanctions on Russian banks and many Russian entities. All assets held by the blocked companies and institutions are now frozen, and U.S.-based individuals and companies can only conduct business with them if they receive exclusive permission from the U.S. Treasury Department.

However, despite these sanctions, most U.S. banks and credit unions will continue to operate regularly throughout this time. Financial institutions have compliance officers on staff to ensure that all federal laws, including wartime sanctions like these, are followed entirely and without interrupting ongoing service. In addition, the financial service industry has experience dealing with similar sanctions from Russia’s annexation of Crimea in 2014 and, more recently, sanctions related to China and Venezuela.

Some U.S. banks are also fearful that there may be a wave of retaliatory cyberattacks from Russia in response to the sanctions placed against the country by the U.S. and other Western countries. While there is no way to predict what will happen, it’s a good idea to be extra alert for possible banking hacks.

How Does War Affect the Economy?

Various wars in our country’s history have had an inflationary effect on the economy. During the Civil War, the Confederacy printed money to pay its soldiers.

During WWII, the U.S. economy was running at almost full capacity with high levels of government spending. These factors and a shortage of workers led to wartime inflation.

Unfortunately, we have already begun feeling the effects of war on an already challenged economy. Prices were already on the rise but you have surely experienced a spike in prices at the pump.

Beyond the pump, prices on goods like grains and metals are rising, too, due to the increase in fuel costs, as well as worries about possible shortages in the near future.

Yet another factor causing prices to soar is air transport. As of March 7, 2022, Russia has closed its airspace to 36 countries. This means each of these countries must divert shipping planes to lengthier and more expensive routes. Of course, the extra cost of shipping gets passed on to consumers in the form of higher prices.

How Can Consumers Protect Their Money?

The stock market has already taken a hit from the war, and many Americans are fearful that the war may spread and/or further impact the economy. Here’s what you can do to protect your assets during the war:

  • Diversify your portfolio.
  • Take advantage of Treasury Inflation-Protected Securities (TIPS).
  • Follow the news, but DO NOT make hasty decisions involving your investments.
  • Diversify your currency holdings.

It’s important to learn all about the ways war can impact the economy and how you can protect your assets during wartime.