International Finance May 10, 2015
U.S International Debt
Please look at the International part of the U.S. Government debt and discuss, 1) why the country has had to rely on International lenders, 2) why the situation with the International lenders may have caused the U.S. Federal Reserve System to initiate Quantitative Easing, and 3) give your opinion of the possible future state of the U.S. economy as it relies on International lenders. This future state should cover government issues, corporate issues, and individual issues.
The history of international lending to developing countries shows surges of lending and recurrent financial crisis. Consequently, international lenders have proved to be very important entities during financial crisis. In my personal opinion the United States government has had to rely on international lenders to enable higher spending without having to increase taxes and to meet the debt that the government has created during the past several decades looking forward to recover and stabilize the economy. From the beginning of the early 1990s, the United States has borrowed heavily and continuously money from international lenders and from its trading partners due to the crisis that the United States economy has been experiencing since the recession. Developing countries can be at a disadvantage when it comes to borrowing funds from international lenders. From my point of view, problems can arise when governments do not have the knowledge and experience to manage the funds and overvalue the projects to be funded by the debt. According to Pettinger, The United States count on international lenders for several reasons such as investment, flexibility, and political pressure (Pettinger). Investment is one important reason why government borrow abroad. When investing, the government is acting like a company who request a loan to finance investment. Basically the government invest in public sector by building schools, better roads, and hospitals. This type of investment give a return on the investment which helps to increase economic growth and productive capacity (Pettinger). Like investing in public sector, flexibility is another important reason of why the United States count on borrowing abroad. When borrowing abroad the government do not have to cut back on spending in order to meet a temporary deficit. In this case borrowing could be like an overdraft facility and that means that the government can keep wages and spending commitments without having to cut spending (Pettinger). Like investing in public sector and borrowing to get more flexibility, political reasons is other important reason of why the United States borrow abroad. According to Pettinger, the main tendency to borrow comes from political pressures. Citizens and voters often support the idea of decreasing government debt through borrowing from international lender, but when it comes ideas like higher pension age and lower benefits, they usually break down and it is likely to hit people with interest in keeping low taxes and spending. Generally, government deduces that relying on international lenders is less politically damaging than increasing taxes (Pettinger). Finally, I can say that borrowing is a healthy option as long as the government can meets its debts.
During the crisis and recovery of the United States economy, many central banks were forced to follow unconventional monetary policies, including the quantitative easing. International lenders may have caused the United States Federal Reserve System to initiate Quantitative Easing because they still need to make profit and in tough time the gap between the official interest rate set by the central bank and the rates faced by companies, households, and countries can rise because lenders want a greater return for the risk that they are taking when they are granting loans in difficult times (Financial Times). Basically, quantitative easing is considered when short-term interest rates are at zero and its main objective is to bring down interest rates faced by companies, households, and countries. The most important step in quantitative easing is that the central bank creates new money for use in an economy (Financial Times).
In my personal opinion, in the future if the United States keep relying on international lenders the debt is going to get higher. Consequently, the United States economy would be at risk of a considerable and continued reduction in economic growth. High debt threatens to push interest rates up, to raise price inflation, and to decrease private investment (Boccia). The effects would be severe and noticeable for individuals, especially for the poor, the middle class, and the elderly. In addition to that, counting on international lenders and growing the debt also would increase the chance of a fiscal crisis, thus, investor would lose confidence in the government ability and experience to manage the budget (Boccia). Therefore, the government would lose its ability to borrow abroad at affordable rates making a negative impact on the country.

Works Cited
Pettinger, Tejvan. “Economics” N.p. July 5, 2012. Web. 11 May 2015. Retrieve: http://www.economicshelp.org/blog/5481/economics/why-does-the-government-borrow/
Financial Times. Retrieve: http://lexicon.ft.com/Term?term=quantitative-easing. Web. 11 May 2015
Boccia, Romina. “Economy and Hurt Americans” N.p. February 12, 2013. Web. 11 May 2015. Retrieve: http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americans