U.s. Dollar Financial Crisis - 1028 Words

As the world’s largest economy, every move the United States makes has widespread effects throughout the global markets. Around the world, there has been speculation of whether the U.S. will raise interest rates by the end of 2015. With all indications pointing to a rate increase, concerns have arisen about the potential ripple effects on the rest of the world. Fundamentally, raising interest rates come hand in hand with an appreciating U.S. dollar. In many parts of the world the U.S. Dollar is used as a major benchmark of current and future economic growth. For developed countries, a strong U.S. dollar can be viewed as positive, however emerging economies will face a different fate. As the world becomes more financially intertwined,†¦show more content†¦dollar. Changes in U.S. interest rates and the dollar are tied to several economic indicators domestically and around the world including; the credit market, commodities, stocks and investment opportunities. Treasury Bonds Directly connected to changes in the U.S. interest rates are the value of U.S. Treasury Bonds. In the United States, the Treasury yield curve is the first to reflect changes in domestic interest rates. As the yield curve moves up or down, this largely dictates how global rates are set. Since Treasury bonds are considered a risk free asset, any other security must offer a higher yield to remain attractive. With interest rates expecting to increase, a great deal of pressure is put on emerging markets to remain attractive investment opportunities. Higher interest rates will likely follow with a higher dollar, and entice many global investors to park their money in the United States rather than emerging markets. This could ultimately hinder developing nation’s employment levels, currencies and exports. Dollar Denominated Debt As the U.S. economy continues to show signs of growth and QE comes to an end, increasing the interest rates may be the right move for the U.S. economy, however emerging markets will suffer. Dollar denominated debt outside the United States currently accounts for $9 trillion with emerging markets amassing $3.3 trillion. Countries such as Turkey, Brazil and South Africa, who perpetually run trade deficits, finance