While our Federal Reserve was busy printing money, we also maintained the highest percentage of trade deficit in our nation's history. As we printed money and put it into the economy, within three transactions, those dollars ended up overseas. It was thus inflating other nations, generally those with lower cost products which imported to the United States. Because of all this money flow those economies emerging markets had incredible growth rates along with the inflation which occurs during those periods of GDP growth.
If the Federal Reserve stops printing money these emerging nations will not see that sort of growth rate and just the thought of that will prevent foreign direct investment from flowing into those countries, along with a flight to safety of what is already there. Where might all the smart money go you ask? Most likely it will come here to United States, and that means much of it will end up in our Banks and investment funds. When our Banks have lots of money, they make more loans, and when the investment funds have more they also make more investments.
Unfortunately there aren't that many good borrowers out there with the ability to repay those loans. Easy money would have a catastrophic effect to our future economy as well. Too much investment money chasing too few viable investment pay-off deals, means future losses.
This is how banking crisis start, it starts with easy money, then the non-repayment of loans, that and an economic hiccup, with massive defaults. We don't need to study too many economic case studies to know that. On July 7, 2013 there was an article in the Wall Street Journal titled; "A Capital Catch in New Rule for Too-Big Banks" by David Reilly. When I read that article, I asked myself if "now" July of 2013 is a good time to raise the capital requirements of our banks?
This is a good question, not just today, but it has been a question of Central Bankers since central banking became a viable job title. Let's talk shall we, specifically about what is happening now around the world and with the "quantitative easing" strategy or QE3, some had one called it QE-I or QE-Infinity, in other words printing money forever, as if that strategy alone would save the global economy.
On July 10, 2013 there was another interesting article titled "The Hits Keep Coming for Emerging Markets" by Erin McCarthy, Charles Forelle, and Ian Talley - which showed a graph with the quote; "The IMF Anticipates Slower Growth," which seems to confirm one of the challenges we now have. Well, maybe it is the right time to require banks to have a little more capital cushion, and to be a little more careful of exactly who they lend money too.
Making student loans too easy and allowing frivolous consumers to take out auto loans for which they can't repay, or even a repeat of the easy money during the run-up to the financial housing crisis would be another mistake, and a historical recent history repeat. Please consider all this when you're talking about international banking, central banks, and international economic affairs.