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Why Countries Loan to the Us

In: Business and Management

Submitted By carmel
Words 807
Pages 4
Over the decades the USA’S national debt has risen to over $17 trillion, very close to defaulting, yet many countries are still keen to lend.
Why do you think this is?
Do you think this level is sustainable?
Since the time of the Founding Fathers US leaders have believed in the concept of American exceptionalism, that the US is a special country with a special mission. It is a notion that continues to this day and when it comes to the threat that it’s deteriorating national finances present to the world economy the US is truly exceptional. We have seen a debt crisis grip Europe and worries mount over the financial state of Japan. These problems are scary enough but when it comes to terrifying debt crisis scenarios, the US stands in a universe all of its own. It is not because the US debt burden is the biggest, but because of the exceptional role the US plays in the global economy. US debt runs the risk of crashing the entire operating systems of the global economy. Not only is the US the world’s largest economy but it also dominates the global monetary system. In many respects, the entire architecture of global finance is built upon the US economy.

The US dollar is very dominant in global financial affairs, more than 61% of financial reserves are held in dollars, 85% of foreign exchange transactions are conducted in dollars and 45% of all debt securities are dollar denominated. To reduce the dollars use in international trade and business, something else would have to take the dollars place. But what? The Euro may eventually be a rival but it cannot be taken too seriously as long as the European debt crisis is still active.
Also the USA’s capital markets are the most liquid, the dollar is seen as a safe haven, countries are not afraid they will lose their money. The dollar is the world’s no.1 reserve currency, this status has become a facet of US…...

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