Why not follow success?

Fortunately or unfortunately, see it as you please, the powers that be now seem to be of the realisation that liquidity in the form of the €1 trillion cash injection by the European Central Bank for the troubled Eurozone economy is what is needed to get the economy moving again.

In the late 1980’ies Boston experienced a property boom similar to that of Irelands in Celtic Tiger Era, and like the Irish property boom, it crashed. The focus of this blog is not on property or booms or busts, but on the paths taken by Governments towards recovery. In the case of the Boston crash the path that followed seems to have been similar to that of Robert Frost, “the one less travelled”. Here the Federal Reserve employed a fiscal union of pumping liquidity into the economy; the unemployed received more federal transfers and paid fewer taxes to the American government. This is how I understand good fiscal policies to work; in the good times; successful regions pay more (because they can afford more) and in recessionary times they receive more, giving the struggling depressed region the opportunity to recover.  Of course this theory is easy to understand, because let’s face it, it’s not complicated. So why are governments and the powers that be making things so complicated?

Instead of following basic instincts, to help in times of a crisis (i.e. in Finance terms inject liquidity when needed), European nations have been choked by austerity measures. Ireland has had austerity for three years now, similarly is the case with Greece and look at where there are now. The German-style fiscal union has thus far been punishing these depressed nations with the result that confidence in the Euro has been slipping and we are surrounded by market uncertainty.

This blog aims to look at whether liquidity is the answer to the banking and financial crisis and over the next few weeks I will be considering the pros and cons of the current fiscal policies being adapted in the European Union and I intend to look at measures such as austerity and quantitative easing their roles a functioning economy.