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United States Financial Problems Root Causes

Last month, the criticism of U.S. economic policy really hot. Fuse is the Federal Reserve announced the second round of quantitative easing policy, decided to purchase 600 billion U.S. dollars by mid-term bonds. The decision was severely criticized in Europe because it means the dollar, euro, this is precisely would the fetters of the European economy. G20 summit in Seoul, German Finance Minister said the U.S. policy of “mindless.” This is not rhetoric for allies. The emerging market countries, regardless of Brazil or China, have criticized the Fed to further ease monetary policy will lead to more capital inflows, which is add fuel to the fire.

Foreign critics of escalating criticism of the Fed, in fact, dissatisfaction with the erroneous policy of the United States. The current U.S. economic recovery is still weak: economic growth rate barely reaches 2%, while the unemployment rate rise again. This means that the U.S. economy is in urgent need for policy support. Because the U.S. “lame duck Congress to” do not want to provide useful financial support, the Fed has become the final decision-makers backing.

Not long ago, Fed Chairman Ben Bernanke in a speech in Frankfurt on the so frankly stated. He said that in order to defend the Fed, he personally would rather see the U.S. fiscal policy to stimulate the economy. But because Congress can not act on this, the Federal Reserve by the Department of its responsibilities, an obligation to do something.

Root of the problem, the U.S. Congress led to financial failure, not the second round of the quantitative easing policy. The real finger of blame should point to the outside world is that the financial failure. If you are a little bit of additional fiscal stimulus is provided, you can ensure that the U.S. economy is unlikely to stall down, or even slide into the abyss of deflation. If you take reduced payroll taxes to provide training for the long-term unemployed, new investment projects to accelerate the depreciation allowances and other measures, will promote both employment and productivity growth.

Foreign policy makers would like to see faster growth in the U.S. economy rather than the second bottom. In their view, instead of relying on fiscal policy easing, not only can stimulate economic growth in the United States in 2011, will the dollar’s rise rather than fall, which would ease the domestic competitive depreciation of the United States intends to concerns.

However, unless accompanied by the introduction of a credible medium-term balanced budget plan, or increased public spending now will only make the market setback, but not worth cheering.

All of these proposals is to remind observers – including the United States to foreign creditors, the medium term, the United States not only has serious financial problems, but have not yet begun to address. And if the U.S. does not take any measures to go on like this, after five years, investors may lose confidence in the value of U.S. Treasury bonds. If they find that U.S. politicians are reluctant to be determined to solve their financial problems, they will collectively sell U.S. Treasury bonds. This means that the foreign exchange market will be big riots, including China, holder of U.S. Treasury bonds, will also suffer huge losses.

The same fact is that the future control within the United States failed to agree on budget deficit and proposed a plan to solve the problem, making the United States can not implement fiscal policies to support economic development. However, this support was forced by reality.

So far, criticism of U.S. economic policy has been enough. However, as only the second round focused on the Fed and its quantitative easing policy, not the U.S. financial predicament, the foreign policy makers are moving in the wrong target fire.

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