An article by Peter S. Goodman states that the Federal Reserve (the Fed) made the decision to drop interest rates on loans to near zero, which allows for banks to borrow money free of charge while they continue to lend money directly to financial institutions. As of August 2008, the Fed’s balance sheet is $2.2 trillion, which is $1.3 trillion more that exists since the bail out. The Fed continues to print money and drag the United States into further debt. The Treasury has been collecting money from foreign investors, such as the central banks of China, Japan and Saudi Arabia. With the investment from these countries, there is a slight increase level of safety in government bonds. The Treasury now has a bill of $10.6 trillion, which worries foreign investors in whether they will be fully paid back. China has invested in large amounts of Fannie and Freddie bonds with the understanding that they were backed by the American government.
Goodman assertions about the status of the American economy are represented by statics of the amount of debt the nation is currently in. He lists foreign investors who hold high stakes in the trillions of debt and explains that without their financial support, the United States would be in a much worse standing. Goodman mentions that China made this investment under the assumption that the bonds were being backed by the US government. He continues to state that the need for the federal bailout only confirms the fear to foreign investors that the United States may not have the funds to pay back its loans. This is a strong argument; however, he fails to explain the bonds that China has possession over and the importance that they hold in the American economy and government. He mentions in the article, briefly, about Japan’s failed economic past and how the American economy is closely following its path. This proves to be a weakness in his arguments because he fails to provide any type of example to reflect Japan’s mistakes.
Essentially this article proves that the United States is horrible with its finances. It tries to force it’s methods upon others, although they prove to be completely flawed. How can a country that is drowning in debt continue to print paper that holds “monetary” value if there is nothing there to back it up? The United States makes it nearly impossible to trust, financially, as it appears to be running a Ponzi scheme in order to hold some sort of political power.
Maybe this is why the American economy is suffering to the extent that it is….