The Fed Reveals it Actually Undertook an International BailoutWith great reluctance in December of 2010, the Federal Reserve Board released an audit detailing the results of the unprecedented action it took during the height of the global financial crisis starting just before 2008. Despite the fact almost of all its programs broke even or showed a profit, the publication confirmed some potentially unsettling news. By expanding its lending programs to include investment banks, the Fed not only helped the financial markets, which were in far more trouble than initially thought, survive, it also exposed US taxpayers to greater risk in order to prop up foreign banks like Swiss UBS. Although upsetting to those who only indirectly benefited from the US government's action, i.e. the average US citizen, the global financial system is rigged to primarily benefit the few at everyone's risk and a failure to respond in such an unfair way would have been far more disastrous.
The impulse to such news is to call on government to limit the reach of the Federal Reserve. This, however, would be nothing but a token move with grave consequences as the Fed is the only body capable of responding fast enough to prevent or lessen future economic crises. The unfortunate reality is our globalized economy ensures we will always take on added risk from failures in other economies and foreign institutes. Unless other governments are able and willing to act as aggressively as we are, foreign based transinternational institutes, which might offer little direct benefit to the US, must be bailed out by big countries like the United States. In spite of all America's fiscal troubles, burdensome trade deficits, and a continually narrowing tax base, the world heavily depends upon the US to subsidize global stability. From international security to healthcare, the United States absorbs many costs that the rest of the world does not yet feel. Consequently, most nations in situations like the global financial crisis of 2008-2009 will heavily rely on America, perhaps without knowing it, as they apparently did. Of course, the European Union did and continues to take action to prevent a deeper catastrophe without direct US intervention. This is a very good thing, because the US cannot afford to absorb greater responsibilities from the financial crisis, but there is still far too much reliance on the United States by many European states. Quite frankly, America is on an unsustainable path where it will not be able to maintain all of its foreign and domestic commitments, despite what politicians and policymakers might say. Unlike the collapse of the British Empire in the early 20th Century, the US has no one to takeover its massive responsibilities. Consequently, the International Community must learn to be far less depend on the United States of America far sooner, especially in terms of indirect benefits. It is also prudent for the US to recognize the need to lessen financial commitments around the world, without disengaging from the world, so the burdens of the International Community can be spread more responsibly and the US, as well as the rest of the world, can grow stronger. Regrettably, US political leaders will likely consider less global reliance on America to equate to a less influential, less powerful United States. Foreigners may well also interpret a far less frivolous America as a need to divest from the US. Thanks to phenomena like globalization such actions would be disastrous for the global economy and the International Community. Power players, such as the US, Russia, China, etc. have allowed the global economy and the International Community to develop as it has. Recalibrating diplomatic and economic relationships, which better reflect current interests of all nations, while sustaining the economies of the world, requires these power players to maintain their strong, central roles. What might be surprising to many Americans is that the national Chinese government seems to understand the need for balance in the economy, despite more and more frequent aggressive moves to assert its power. Always seeking stability above all else, Beijing has called for the rebalancing of the American-Chinese trade deficit and pushed Washington to pursue greater fiscal responsibility while warning the world of its over reliance on Chinese exports like heavy metals. In terms of action, however, Beijing has not been, or may not be, able to assert its will over provincial leaders. Helping rebalance the American-Chinese partnership requires more than just properly valuing the Yuan; the Chinese must buy more American goods and crackdown on counterfeit goods as well as undertake credible, effective efforts to better respect intellectual property rights. Moreover, the Fed's international bailout was necessary at the time, but the world's over dependence on US action must be lessened. This should not, nor can it, be done by attacking the Fed. Disengaging from the world and the world disengaging from the US would be harmful as recent historic events from the 2000's demonstrate. Perhaps part of the solution involves somewhat capsulating, not isolating, strategic sectors and/or specific industries of domestic economies from the global economy; however, the ultimate answer requires the US and the rest of the world to better influence what is happening in their economies, i.e. regulate effectively, and find ways to cope with weaknesses in the global economy. In addition, global leaders must recognize all nations are now at the mercy of each others' economic policies and the behavior of transinternational corporations. |
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