In the world, lots of radical things are happening recently in developing countries which became more productive than ever during monetary easing such as Argentina, Brazil, Turkey. All of them got investment from investors who ran away from developed countries due to minus interest rate. The first time the purpose was to raise the inflation rate significantly in the market before falling under minus because the interest rate shows consumer perception which means if consumer perception demonstrates the central banks that consumer behaviors change for nonconsumption, then central banks start printing money for stopping decayed inflation rates. In 2008, a lot of central banks overprinted money again and again. The printing money leaked in developing countries as an investment. It is a fundamental economic theory in macroeconomics. If the interest rate is low to get credit, then people take some loans from banks to invest in countries, which offers the highest interest rate. Thus developing countries could find investments easily in the market. The real story starts after that because not every state uses the investing money correctly. In this case, the country's government come into prominence. If the government are smart enough to use cash in profitable sectors to make more money, then the country's future may be under guarantee, yet regrettably, some governments could use the money correctly.
In 2008, Fed(American Federal Bank) printed money a lot, likewise European central bank. The primary goal was to stop decreasing the inflation rate in the market because if people feel that the inflation rate will always go down, then they end buying new goods and the interest rate starts going down faster than before. It gets into a vicious circle. Japan is an excellent example of it. The high inflation rate is dangerous as much as the low disinflation. That is why central banks printed too much money immediately after starting the 2008 economic crisis, but everything went without the plan because printing money leaked in developing countries due to the high interest rate. Namely, people got money from banks, which offered cheap credit and invested in countries, which provided the high-interest rate. Thus people earned lots of money even though paying their loan. That was superb opportunities for the investors until Fed announced that they would stop printing money.
In 2013, Ben Bernanke, the former chairman of Fed, announced that he was going to end printing money as soon as possible due to extreme printed money had a potential to damage the economy of America. After the announcement, panic began between developing countries. There was no country got ready for the period of monetary tightening.
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The graph shows that Argentina GDP growth rate fell under zero likewise rest of the world in 2009, yet in 2010, it rose significantly with the effect of monetary easing. In the period of fiscal tightening, Argentina GDP growth rate has started to decrease sharply, Which means Argentinas' economy addicted the investment. |
What happened to the developing countries after Ben Bernanke's announcement?
After the announcement, many governments just ignored it, and they continued to carry out whatever they want because politicians only care about next elections, namely economic policies or the future of countries are not that substantial for them, but the economic policies are superb significant for investors to be able to invest in states. Afterward, Investor left the developing countries not to see any newer economic policies in the plan of the future of governments.
Today, many developing countries have economic problems with inflation and interest rate, and they still have been excepting investors reinvesting to their states without doing a new economic policy.
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