Global economy Essay Example | Topics and Well Written Essays - 2500 words - 1

Global economy - Essay Example Nevertheless, the end of 2010 was marked with the U.S.’s decision to throw additional money into the domestic economy, to encourage economic growth and slow down the economic downturn. Controversial and radical, the decision to apply to quantitative easing became one of the most actively discussed issues in economics. That quantitative easing has far-reaching implications for the domestic and global economy cannot be denied, but its role in the development and expansion of the positive economic growth is yet to be defined. At the end of 2010, the Central Bank of America announced its decision to pump up additional $600bn into the domestic economy (Elliott & Inman 2010). The decision to use quantitative easing mechanisms was justified by the failure of the American federal authorities and the Fed to accelerate economic growth, encourage lending, and reduce unemployment (Elliott & Inman 2010). It should be noted, that the past recession became the worst economic downturn in Amer ica and the rest of the world since the Great Depression (Elliott & Inman 2010). As a result, traditional instruments of economic recovery failed to improve the situation. Quantitative decision for the U.S. was similar to the instrument of last resort, when there is nothing else the Fed can do to alleviate the burden of economic problems within the country. As part of its strategy, the Fed would purchase long-term Treasury bills every month, until the middle of the year, totaling to $75bn (Elliott & Inman 2010). The United States claims that quantitative easing is simply inevitable, when the state wants to preserve â€Å"ultra-low† interest rates for an extended period, thus keeping the amount of the borrowing costs unchanged for at least two years (Elliott & Inman 2010). The principal intentions of quantitative easing are but positive. The reality, however, is not as bright as economic theory tries to create it. Even if quantitative easing has a potential to support relative stability in the U.S., it may have damaging and even fracturing effects on the global economy. It should be noted, that economic theory treats quantitative easing as â€Å"the central bank’s asset purchases that are designed to inject money directly into the economy to raise asset prices, boost spending and so keep inflation on track to meet the 2% target† (Ganley 2010). The most probable sources of additional assets for the Central Bank include â€Å"insurance companies, banks and non-financial institutions, pension funds and firms† (Ganley 2010). Such injections directly into the economy are justified by the rapid contractions in the amount of spending that follow global financial crises (Ganley 2010). More often than not, quantitative easing is used to stop price deflation and encourage real output (Ganley 2010). The history of quantitative easing dates back to the beginning of the 1990s, when Japan found itself in the midst of a deep economic and financial crisis (Kurihara 2006). â€Å"The development and implementation of the zero interest policy had to encourage economic recovery but did not produce any real effect on the economic development in the country† (Kurihara 2006). Quantitative easing was introduced to initiate long-term economic growth in Japan. Unfortunately, and after so many years of economic recovery and growth in Japan, whether quantitative easi