Response Blog Post #1
It isn't any breaking news to reiterate the fact that the
US Federal Reserve (Fed) interest rates are low (between zero and one-quarter percent).
The news that has been circulating recently,
though, is that these low rates are expected to stay low for a while. They have
been low for quite a long time, starting after 9/11 under Greenspan's
administration with multiple attempts to revive the economy by making it easier
and cheaper to borrow money. The unprecedented response was that the low
interest rates led to a new demand for mortgages and home equity loans, which,
in turn, led to the housing bubble and the subsequent bubble burst and financial
crisis of 2008. Now, in late 2015, with the low rates and implementation of
quantitative easing methods bringing an apparent boom to the economy, some
question why we still have these low rates in place. There is controversy going
on over whether or not it is safe to raise rates. A Realist's standpoint to all
of this would likely be indifference, or, he would probably just look on the
surface, like many Americans are doing, and give approval to raising the rate.
What the Realist probably wouldn’t consider, though, is volatility of the
global financial market, namely, the devaluation of the currency in China due
to the major market selloff. The Chinese government came
in with an attempt at a rescue and pumped money into the market to serve
as a boost, but this didn’t seem to work. European equities markets have been
dropped down very low and raising the Fed rate at this time, though widely anticipated,
would not be the smartest decision. The foreign trade sector represents roughly
one third of the supply and demand, so it would be silly for the US Fed to
ignore the rest of the world’s economic activity just to control inflation or
to give banks more incentives to give out loans.
Realists would most likely underestimate the importance
of the Fed's interest rates. This is because economic power is not as important
to a Realist as military power, unless that economic power is interlaced with
the military power. This Realistic viewpoint is unreliable because it is too
pessimistic, doubting the morality and consequent sensibility of the
international system. If a Realist thinks that countries all act in their own
self interests, then how could one account for the US giving billions of
dollars to needy countries? To a Realist, this would be a silly move. Yet the
US has done so and still maintains its position as a regional power. Moreover,
if each country only thought about its own interests, then the world’s
international policies would be at a deadlock. Admittedly, some policies have
more weight than others, but overall, this is not the case. For example, the
European Union has been successful in distributing its large numbers of refugees
over the member countries, with the US taking in 100,000 per year and Germany
taking in a whopping 500,000 per year. These large accomplishments would not
have occurred without the countries working together, not pitting themselves
against each other. In this way, they defy Realist tendencies successfully, and
hopefully the Fed interest rates will do the same.