Financing is one of the most important factors for economical growth both nationally and internationally. Recently in the news there have been issues with regards to companies and economies trying to raise finance whether in the form of loans or equities and other sources such as government bonds. All the sources of raising finance have their advantages and disadvantages, choosing the right method depends on the project involved.
In the business news this week on the BBC, China had a reduction on the amount of US treasury holdings which apparently was running for the second consecutive month. The US for a while now since the financial crisis has been trying to build itself up/ recover its market back to the way it was, but the truth is, it is proving more difficult than it seems as its more or less relying on the government bonds and global equities to act as a stepping stone to its recovery. It also does not make it anymore easier especially with the fact that the US dollar has weakened significantly making the US assets less attractive especially for the investors. China being the world's second largest economy (just over taking Japan), remains to be the biggest holder of the US debt, but this should be of no surprise because of the rapid economical growth it has been experiencing as a result of a manufacturing boom.
The US economy though relying on the international growth, it also relies on China, but due to the three times increments on interest rates in China, inflation has had a drastic rise which in turn can cause heavy implications for the US corporations that have been reliant on its international growth to assist the US economy. There is still hope for the recovery of the US and amidst all their solutions to raising finance it seems they're sticking to the financing methods of equities and international loans. One hopes the future will be more lucrative for the US economy just like that of the Eurozone who have formed a permanent bail-out fund called the 'European Stability Mechanism' (ESM) worth 500bn euros replacing the previous 'European Financial Stability Facility' (EFSF) worth 440bn; this was to provide support to the eurozone countries as a back up to any financial mis-hap which is more than the backup the US economy has at the moment. With China suffering from higher inflation i can only imagine how this will affect the future debt holdings of the US economy.
Do you think theres certain parts of the US financial system that should act more to improve the situation in the US economy? Do you think the US economy is coping better than the UK with the recent recession?
ReplyDeleteAre you saying China are reducing their US debt holdings in terms of actually paying the debt back? Or are you saying the US are increasing their borrowings from China?
I agree the US economy is becoming more and more dependent on other emerging economies like China, making the US like many other developed countries vulnerable to China's changes in policies.
With regards to the back up facility for the Eurozone, do you think its a good thing to ahve a back up? surely it may be more beneficial for the these economies to recover on their own and no depend on other countries to rescue them, which has been seen in Greece and Ireland. I don't feel the US economy is in a state which needs the back up, which is a good thing right?
Well Kelly from recent issues in the news and considering how large the US economy is you can say that they may not need financially backup but the fact that this whole financial crisis began from the US there must be issues of lack of transparency as the main key issue which lead to their decline. With such a large economy it is in their interest that China has become the US debt-holder due to their strong currency. To be honest US cannot be compared to the recoveries of either Greece of Ireland due to thier sizes which should be comsidered.
ReplyDeleteThe Eurozone backup , yes its a good thing but what the European contires need to understnad is that its not acting as an Insurance its more or less a lender for which there has to be some kind of repayments from the European country that dips their finger into the honey jar. Also the recovery of an economy surely depends on the level of debt they are in, as well as the trend in their economic growth.