Global Economic Crisis - Essay Example

Global Economic Crisis Here Here Here Here Global Economic Crisis United s Treasury bonds (T-bonds) are a form of security exchanged by the federal government for borrowed money. The value of these and other securities are threatened by a potential downgrade in status by major international investor services like Moodys. These companies monitor and rate the creditworthiness of corporate and government issued bonds throughout the world. Such an act would tell the world that the US is less likely to pay back promised amounts than before the downgrade.

Rating reductions shake public and professional confidence in lenders, and can result in actions that may ultimately devastate a national economy when the downgrade is applied to T-bonds. According to Ernhardt and Brighams 2010 book, the downgrade of T-bonds has the potential to cause a disastrous economic situation across the country. A single step down in credit rating is often a bad sign for future rating decisions, and so the US would be at a greater risk of gradually falling into economic despair.

As the dollar continues to drop in worth, foreign investors like those in China would predictably respond by trading their US T-bonds for domestic currency to conserve value. The response would add to pressure on the dollar, further weakening it, and continuing a vicious cycle that could result in the complete collapse of the US economy. Since the writing of the previously mentioned book the US T-bond has experienced the first downgrade by an investor watchdog agency, and as of now the country has not crumbled into economic obscurity.

However, the country remains financially compromised and may be yet to experience the first ripples of the effects predicted by the authors. ReferenceEhrhardt, M. C., & Brigham, E. F. (2010). Corporate finance: A focused approach. South- Western Pub.