International Finance Essay

876 words - 4 pages

International Finance
May 10, 2015
U.S International Debt
Please look at the International part of the U.S. Government debt and discuss, 1) why the country has had to rely on International lenders, 2) why the situation with the International lenders may have caused the U.S. Federal Reserve System to initiate Quantitative Easing, and 3) give your opinion of the possible future state of the U.S. economy as it relies on International lenders. This future state should cover government issues, corporate issues, and individual issues.
The history of international lending to developing countries shows surges of lending and recurrent financial crisis. Consequently, international lenders have ...view middle of the document...

Basically the government invest in public sector by building schools, better roads, and hospitals. This type of investment give a return on the investment which helps to increase economic growth and productive capacity (Pettinger). Like investing in public sector, flexibility is another important reason of why the United States count on borrowing abroad. When borrowing abroad the government do not have to cut back on spending in order to meet a temporary deficit. In this case borrowing could be like an overdraft facility and that means that the government can keep wages and spending commitments without having to cut spending (Pettinger). Like investing in public sector and borrowing to get more flexibility, political reasons is other important reason of why the United States borrow abroad. According to Pettinger, the main tendency to borrow comes from political pressures. Citizens and voters often support the idea of decreasing government debt through borrowing from international lender, but when it comes ideas like higher pension age and lower benefits, they usually break down and it is likely to hit people with interest in keeping low taxes and spending. Generally, government deduces that relying on international lenders is less politically damaging than increasing taxes (Pettinger). Finally, I can say that borrowing is a healthy option as long as the government can meets its debts.
During the crisis and recovery of the United States economy, many central banks were forced to follow unconventional monetary policies, including the quantitative easing. International lenders may have caused the United States Federal Reserve System to initiate Quantitative Easing because they still need to make profit and in tough time the gap between the official interest rate set by the central bank and the rates faced by...

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