Many developing countries have been investing in U.S. Treasury bonds over the past five years, but now they are taking their capital investments elsewhere because of the rise in interest rates in the U.S. This could pose a risk to global financial stability because the outflow of capital could increase along with the unpredictability.
The IMF has urged the Europeans to try and form a single banking body that would reorganize and streamline unsuccessful banks across Europe. Italy, Portugal, and Spain are overwhelmed with corporate debt, most of which is owned by companies that do not have the capacity to service their debts. To earn the best grades in your Project Report-Research Papers you should choose an academic writing service that will meet your best writing needs.
This is obviously cutting into their profits and is negatively affecting their balance sheets. The United States has been provided some reprieve from the European sovereign debt crises because European leaders have reached a Continent-wide agreement to cut deficits and stop bailing out banks in trouble which has considerably reduced costs and have provided some relief to the U.S.
Disinvestment in U.S. Bonds
Although there was some improvement in the debt situation, they are not out of the woods yet. European sovereign debt could have a negative impact on worldwide global markets and growth, but there is some progress in that Europe has assured investors of the stability of the Euro by assuring that all Eurozone economies have adequate capital for their debts at bearable rates.
This has relieved pressures in Europe which has improved financial markets in the U.S. and across the globe. Bond yields have dropped in Europe as the action has been taken by the European Central Bank, specifically for long-term financing to provide cheap financing for banks that desperately need funds.
This has still the fears that the sovereign debt might turn into a viable threat and the threat to the euro has virtually disappeared. This has relieved financial pressure which has inspired economic confidence in the United States. Despite the easing of financial pressure, it is still possible that the problems in Europe could negatively affect growth in the United States.
Although countries like Spain are still struggling with their sovereign debt, the eurozone entered a period of stability at the end of 2011. Europe’s financial troubles have reduced its investments in America and there is a lessening of demand for American goods. This is not very good news as the euro counts for 1/5th of the dollars that go into a global economic output and America and the European Union contribute about a third of global trade interactions. Even if Europe were to recover from its financial trouble, its growth would be still below the required levels and still weak which in turn will affect the economic recovery in the United States.