The Fed’s decision to start tapering based on the way the US economy is recovering is having an effect on not only US markets but global markets as well. When US interest rates were low, investors were looking for higher returns which they found in emerging markets. As the Fed started tapering, investors started pulling their money out of these emerging markets and putting it back into US markets, which caused emerging market currencies to fall. (De Groote)
Contagion is “the likelihood that significant economic changes in one country will spread to others.” (Contagion) As of now, emerging markets are in trouble. According to Luis Alberto Moreno, the president of the Inter-American Development Bank, “Emerging markets, especially in Latin America, are much better at managing economic crises than prosperity.” (Naím) Since emerging markets did not manage their prosperity well when the US was in recession and the Fed was using quantitative easing and low interest rates to help boost the economy, they are now suffering from the investors withdrawing their money as the US economy is recovering. The US is not the only country having an effect on emerging markets. When “the Chinese government attempted to cool down a dangerously supercharged economy,” the slower growth that resulted in decreased export revenues for emerging markets and lowered demand for commodities that the giant country consumes. (Naím)
According to Naím, “Stock markets in the U.S., Europe, and Japan just recorded their worst earnings since January 2010—a telltale sign that the crisis in emerging markets has already hurt developed countries.” As of now, experts believe that it is unlikely that the crisis emerging markets are experiencing will escalate into a full-blown ...
... middle of paper ...
... TURKEY." International Reserves and Foreign Currency Liquidity - TURKEY. N.p., n.d. Web. 16 Feb. 2014.
6. Kenny, Thomas. "An Explanation of Fed Tapering and Its Impact on the Markets." About.com Bonds. N.p., n.d. Web. 17 Feb. 2014.
7. Naím, Moisés. "Emerging Markets Are Crashing: Should We Be Worried?" The Atlantic. Atlantic Media Company, 05 Feb. 2014. Web. 15 Feb. 2014.
8. "National Debt in Turkey in Relation to Gross Domestic Product (GDP) 2013." Statista. N.p., n.d. Web. 16 Feb. 2014.
9. "Turkey Current Account." TRADING ECONOMICS. N.p., n.d. Web. 16 Feb. 2014.
10. "Turkey GDP Annual Growth Rate." TRADING ECONOMICS. N.p., n.d. Web. 16 Feb. 2014.
11. "Turkey Government Budget." TRADING ECONOMICS. N.p., n.d. Web. 17 Feb. 2014.
12. Zumbrun, Joshua. "Plosser Says Tapering Delay Undermined Fed's Credibility." Bloomberg.com. Bloomberg, 8 Oct. 2013. Web. 17 Feb. 2014.
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
The decreasing current account, increasing capital account, depleting international reserves, declining real GDP growth and increasing dollar-denominated tesobonos all pointed towards the vulnerability of the Mexican economy. In view of the repeated political unrests, Mr. Woo and the others should have expected this crisis. But they based their decisions on surface information and market sentiments that had over-valued the market potential.
The Federal Reserve rate cut has weakened the dollar. Is the rate cut benefit to dollar? Weak dollar, lower currency compare to foreign currency, has no effect on price of local products which produce in the United State. But affect import and export goods. The United State firms find it easier to sell goods in foreign markets. Thus import American goods are less competitive pressure to keep price low. Thus, weak dollar benefit U.S exports by making American goods cheaper in foreign country. Foreign tourist can afford to travel and visit the United State. When dollar is falling, purchasing power of foreigner is increasing. Purchasing power is the amount of value of a good or services compared to the amount that you paid. So when dollar is depreciating, exchange rate becomes smaller. Exchange rate (foreign-exchange rate, forex rate or FX rate) is the number of units of a given currency that can be purchased for one unit of another currency. The United State capital markets become more attractive to foreign investors. Since dollar is falling, it makes foreigner’s investment over United State more affordable. Therefore foreigners take this opportunity to invest in the United State.
In recent years, unconventional monetary policy has become more common. This category includes quantitative easing, the purchase of varying financial assets from commercial banks. In the US, the Fed loaded its balance sheet with trillions of dollars in Treasury notes and mortgage-backed securities between 2008 and 2013. The Bank of England, the European Central Bank and the Bank of Japan have pursued similar policies. The effect of quantitative easing is to raise the price of securities, therefore lowering their yields, as well as to increase total money supply.
"Subprime Mortgage Crisis - A Detailed Essay on an Important Event in the History of the Federal Reserve." Subprime Mortgage Crisis - A Detailed Essay on an Important Event in the History of the Federal Reserve. N.p., n.d. Web. 04 May 2014.
World Facts and Figures - GDP per capita by country. (n.d.). World Facts and Figures. Retrieved November 28, 2010, from http://www.worldfactsandfigures.com/gdp_country_desc.php
Stuart, Reginald. "ON THE RISE?" Crisis (15591573) 114.4 (2007): 16-20. Academic Search Elite. EBSCO. Web. 4 Oct. 2011.
United States Federal Reserve. (February 11, 2014). Monetary Policy Report. Retrieved June 18, 2014, from http://www.federalreserve.gov/monetarypolicy/mpr_20140211_summary.htm
Weiss, M.A. (2009) ‘The Global Financial Crisis: The Role of the International Monetary Fund’, CRS Report for Congress.
Keeping up to date with all the latest and most important economic headlines around the world is a part of my daily routine, as well as reading newspapers and economic magazines, adapting my studies to the real ...
Subramanian, Arvind. India’s Economy is stumbling? The New York Times. August 31, 2013: A19. Print.
The IMF was not designed to be an aid agency but its role in economic
Although the origin of the GFC might have been the housing and financial crisis in the US, it affected both developed and developing countries in a devastating way. More specifically, the crisis has destroyed global financial systems and government budges, strike the confident and security of financial markets. It was universally recognized the worst global economic downturn since the Great Depression in the 1930s (Ciro, 2012). Before the financial crisis, the increasing food and oil prices had affected the non-producers and because of the developed economies are more integrated within the global financial systems and markets, they were the worst affected by the GFC in the short term. Developing countries were looking more optimistic in the short term as their economies were not as integrated into the global financial market system. Nevertheless, the escalated impact of the crisis did affect the real economy of developing countries especially on the export-orientated nations. As the demand of goods and services has been weakening from the developed countries, the output of manufacturing or services companies decreas...
“If you owe your bank a hundred pounds, you have a problem; but if you owe it a million, it has.(1)”
...nces discussed above. Right now, the global economic is recovering, but the study of reasons of the crisis still teaches many countries a lesson on how to build a solid financial system and how to deal with other macroeconomic problems.