The Global Economy Essay Example | Topics and Well Written Essays - 2250 words

The Global Economy - Essay Example(Sriram 2010). Whereas foreign investors to the US are profiting by loaning devalued dollars to purchase government bonds and industrial securities and invest in foreign exchange and acknowledgement markets, foreign central borders, on the other hand, collect below 1% on the international treasury bills and bank securities (Hudson 2010). In 2011, Bernankes recommendation of another quantitative easing (QE II) is an additive $1 trillion liquidity in the Federal Reserve credit, aside from the $2 trillion reserve credits made in 2009 and 2010 would help the financial sector solve the unemployment crisis and consumer expenditures and revitalise the US economy. However, this second quantitative easing is not free of associated risks. Federal Reserve, treasury assistance and liquidity have been utilise by banks to maximise returns and disburse on high wages and bonuses. Capital lending has increased asset costs but decreased the production and employm ent. splashiness in asset costs has placed the FIRE sector (finance, insurance and satisfying estate) beyond the true economic status of the country (Hudson 2010). Anchored in the hurt assumption that the QE policy of granting liquidity will be an opening for the banks to profit from loans, thus freeing them from debts, Bernanke failed to consider that almost 80 percent of US bank lendings are mortgage loans and that around 30 percent of the US real estate is experiencing economic inequities due to asset prices that have failed to keep up with mortgage liabilities. The collateral loaned for these mortgages do not cover the principal cost and property titles seem to lose protection as the real estate sector is sometimes managed in fraud (Hudson 2010). US Treasury Secretary Geithner (2010) explains that reviving the credit flow would only create more debts. The credit flow would allow real estate buyers and stock market financiers to employ further control over debts to propose ass et costs back up to save the banking system against the antecedently negative equity it has befallen. Geithner describes it as steadying the failing banking system. The Fed hypothesises that for the country to regain its high economic status, the national banking system would loan out the almost-free countless liquidity at a markup. Such recuperation would be generating more debts. Bankers, businesses and homeowners would be liberated from their negative equities and the corporate sector and housing market would liable(predicate) boost again. However, since 2007, the banks have implemented high restriction standards in loaning out to businesses, homeowners and consumers. The increased rate from zero to 3% has been crippling these debtors with liabilities in their credit cards, mortgage and bank loans (Hudson 2010). The US quantitative easing is diminishing the dollar value against foreign currencies with floating trade rates whilst increasing the dollar supply. The daze of the po licy on exchange rates between the US currency and the floating-rate currencies is not surprising. It is the obvious outcome of the dollar devaluation from the excess flow of dollars. Moreover, foreign investors operate to purchase other currencies not prone to volatility and inflation (Feldstein 2011). One of the objectives of Bernankes QE schema is the encouragement of domestic activity within the US and the decrease of further depreciation, however, the generated surpluses on