U.s. Dollar Financial Crisis

China has become a perceived threat to the U.S. economy because of the increasing trade deficit between the two countries, their ability to undercut production costs of similar products produced in the United States, and the amount of leverage that China has over the United States due to amount of money that has been lent by China. Although the United States has taken steps to close the trade deficit, such as convincing China to raise prices on their exports, there is still a considerable gap (Prasad). The United States government continues to print money that they simply can’t afford, therefore, relying even more heavily on China sustaining the value of their currency. Unless the United States is able to close the trade deficit and regain control of our economic flexibility, the problems caused by foreign countries owning our debt will remain eminent.

The current state of the U.S. macro economy is made up of a plethora of highly involved processes. I am going to attempt to explain some simple terms and concepts focused on international trade and foreign exchange rates.

2) Interest rate parity (how exchange rate is determined by the flows of capital) and

According to staff review of the financial situation for January 28-29, there are developments in emerging market economies. The Fed will continue to support Monetary economic situations over the intermeeting period, they were critically affected by Federal Reserve correspondences, to some degree better-than-anticipated economic information discharges, and advancements in developing market economies. On net, monetary conditions in the United States stayed strong of development in economic action and work: Equity costs is wrinkled a bit, longer-term investment rates declined, and the

The United States is the leading economy across the globe and experienced several tribulations in the recent past following the 2008 global recession. Despite these recent challenges, there are expectations among policymakers and financial experts that the country will experience solid economic growth. Actually, financial analysts have stated that the U.S. economy will be characterized by increased consumer spending, increased investments by businesses, reduced rate of unemployment, and reduction in government cut. Some analysts have also stated that the country’s economy will strengthen in 2014 with an average of 2.7 percent or more. However, these predictions can only be understood through an analysis of the current macroeconomic

The current economic event on the increase in the National government debt has become of interest to the public and the decision makers. This paper looks at the economic event as per Stephen Dinan’s article in The Washington Times dated on June 16, 2015, in regards to the impact of the increasing national debt to the general economic growth in America. The proportion of the United States ' National debt is increasing in comparison to the National GDP. It is evident from the past years that the United States ' Treasury has been borrowing a lot of funds from its citizens and foreign investors to help fund wars promote the economic development of the country, and save the financial systems as well. This paper will explain and demonstrate an in-depth economic analysis of the USA National debt vital to cope up with this worrying trend in the economy.

How will Trump affect interest rates? Trump can improve the overall condition of the economy by guiding the

The United States will suffer an economic catastrophe when China stops purchasing U.S. government bonds because the U.S. government will not be able to pay its bills. According to Morgan Housel of the investment community, “China has indeed been a prolific buyer of U.S. debt over the past decade; in 2000, Mainland China owned less than $60 billion of Treasury debt [and] by 2010, it owned more than $1 trillion, surpassing Japan as America 's largest foreign creditor.” It is hard to imagine that such a world power like the United States needs any assistance from others. For years it has been speculated that without the help of China buying U.S debt, they will be in a huge deal of problems. That is extremely exaggerated being that the U.S. have many other investors but it is important to note that China is a very huge part of our economic success. Without the help of China we can truly look forward to higher interest rates, higher inflation and crowding out private investment. I do agree that the United States needs China in order to maintain a stable economy. With out the help of China’s investments the America’s economy will become weaken by the impending high interest rates, inflation, high unemployment rates, decrease in productivity, a decline in the stock market and a country where its citizens highly rely on their help of the government.

Next, the United State firms find it harder to compete in foreign market. When the US dollar strengthens, foreign trade partners will have to pay more euros and pounds in order to make up for the appreciated dollar when they import from the Unites State. The increase in dollar will eventually decline the demand as American made goods become less attractive to buy at the consumer level in foreign country. This is because the United State has to compete with lower price foreign goods. This slump in demand will ultimately translate into thinner profit margins of manufacturers and producers in the United State, reducing expansion potential in the country. The result in the longer term will be slower growth even as the United State consumers up their near term standard of living. Besides, foreign tourists find it more expensive to visit the United State. For example, I’m a Malaysian. If I wanted to exchange money to have a vacation at either the United State of America or Australia, I have to compare the exchange rate. In the past, exchange rate between Australia Dollars(AU) and Malaysia Ringgits(RM) was RM 2.8 per AU while exchange rate between the United State

Other economic influences could be that inflation may rise faster than expected in the future as a result of the U.S.’s selling of its debt overseas and the value of the U.S. dollar could fall. (Beams, 2004)

Although lower interest rates can improve domestic spending, it will discourage foreign investors because the return on their investments decreases. As of September 2011, the US interest rate is close to 0% and Canada’s rate is at 1% as determined by the Bank of Canada. Low interest rates indicate that the US is in poor financial health. More countries will want to invest in Canada if the US is in a risky financial situation and additionally, provides low returns. The value of the Canadian dollar rises when demand increases.

US interest rates will need to rise to attract enough investors to buy the debt. These higher interest rates will reduce demand in the economy.

since 2000 (Edwards, S., 2005).” As a result of the increase in foreign demand for U.S. assets, Americans have had access to foreign investment enabling the United States to function with large deficits for years. Looking forward, the United States dollar and the economic health of the country is very dependent on foreign investment in U.S. assets. A potential risk looms in the chance that Asian central banks might lower their demand in U.S. assets resulting in a sharp decline in the U.S.

The best evidence so far for the existence of an American empire, despite denials to the contrary, is the Global Financial Crisis (GFC). The persistent removal of restrictions and oversights on the domestic financial system of the US, combined with the decisions of individual firms, other governments and foreign financial organisations, culminated in the singe largest depreciation of assets and currency valuations in history, surpassing even the Great Depression in its extents.

A fixed exchange rate regime will offer an economy greater stability in international prices and therefore encourage trade. Additionally, for developing countries a fixed rate will assist in promoting institutional discipline as the country will adopt restrictive monetary and fiscal policies that foster an anti-inflationary environment. A significant weakness of a fixed rate is that it is subject to destabilizing speculative attacks which could lead to financial meltdowns and devastating economic contractions. A floating exchange rate regime allows central banks to combat macroeconomic factors such as unemployment, inflation, and interest rates without having to worry about the effect on exchange rates. However, developing countries whose economies depend on trade will be reluctant to allow their exchange rates to fluctuate freely.