You need us and we need you

The article “You need us and we need you” in the Global Agenda Section on Economist.com touches on the topic of Americas spending and how it is effecting the World Economy. It is said that Americas out of control spending in recent years has created a problem concerning different currencies from around the globe. The deficit spending in which America is currently engaged has brought in many Central Banks to loan money to the US. The World Bank estimates that around 70% of Global Foreign reserves are in dollars.

The problem continues to grow especially with countries fighting to keep their currency exchange rate steady. These Cheap exchange rates are also frowned upon by the World Bank who is currently encouraging countries with extremely undervalued currency to make their exchange rates more flexible in order to stimulate domestic demand. The problem with this is that a sudden depreciation in the dollar could send the world economy into a tailspin after being so heavily invested in the US. It is expected that Alan Greenspan will steadily increase interest rates in order to slow Americas spending and encourage Americans to save more. It is hoped that this will correct the dollar’s value and help foreign countries step out of the never ending circle of keeping their currency exchange rates low and thus costing them millions a year to do so.