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Economy - Essay Example

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Currently, the US government has the capacity to borrow large amounts of money with consumers getting home loans, student loans, and car loans at dramatically low rates. By the time this rates change, (this environment will change soon) it is going to devastate the economy of…
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Download file to see previous pages Rising interest rates will devastate the government and would become much expensive for the local government to borrow cash, and home loans will be out of reach for citizens except for the very wealthy, by next year. Consequently, US may be wiped out financially, thus, bring the economic activities to a standstill (National Bureau of Economic Research 45-6).
The Federal Reserve has strived to keep US interest rates debt at a low level, and they have succeeded. Until recently, investors and nations around the world continue to participate in this system regardless of the fact that the federal system is not honest. However, there are indications that too many foreign direct investors are lastly outsourcing their investments to other countries. For instance, China and Russia have been dumping US regime debt. Other direct investors are Renowned investors like Jim Rodgers say he will dump 30years of US government bonds. When investors put such comments forward, there is a high probability that by 2013, US will have few direct foreign investors.
The decline of the dollar will lead to reduced consumption and will shift consumer expenditure from imported goods to domestic goods and services while supplementing demand in domestic products with increased exports. Unfortunately, the lower dollar value is expected to last longer than anticipated. The Congressional Budget Office predicts that the budget deficit will approximate to 5.2% of the GDP in the coming years. It is more likely that foreign lenders like China will not continue lending money to US. Due to the reduced demand and decline of the dollar, the trade deficit will decline. The loss of reverse status will be disastrous for the dollar value. Foreigners will rash to get out of the dollar, either through outright currency conversion or through bidding up the US goods value as they rash to unload the dollar holdings. Though it is hard to tell ...Download file to see next pagesRead More
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