Run, Money Making Machine, Run!

What does that really mean when governments across the the Eurozone countries, following the suite of UK, consecutively guarantee to backup those ailing banks to provide huge amount of money, even unlimited, to maintain necessary liquidity?

It is a coordinated remedial action indeed, and the market responds positively. Relieved? Hold on for a while, where this huge amount money comes from? Money can create itself, or governments suddenly know how to play gimmick? Never mind those blank cheques, as long as the confidence is restored, the pressure can at least be reduced a bit, otherwise it will be reaching at an unbearable level.

Actually, this kind of coordinated measures is gambling on the presupposition that no banks in reality would encounter the worst scenario, that is, they would really require governments to fulfill their promises to provide tons of money in one shot. If that happened, money printing machines would be very busy, and high inflation would be unavoidable. The issue is to set the confidence in motion, pulling the financial institutions out of this fearsome dead end and entering into a benevolent circle.

Formally, it's a risky decision again, in a much larger scope at the national and international level far beyond financial sector. It is also a forced free choice par excellence as well for Eurozone countries, and those who have guts to take a lead will have more power to set the tune for the future. In this latest round of competition, UK's Brown government does stand out and has played the leading role in presenting what seems to be a more feasible solution to the crisis.

Now, the market initial reaction seems positive that the worst scenario looming at the horizon has been temporarily contained. Human nature triumphs. Put your finger crossed though, as the price of filling in this credit black hole promised by those governments will be born by everyone in this world in a more subtle and invisible way.

Admittedly to most of us, such a prospect is less painful in reality than a sudden collapse of the ailing system. However, if it works, restructuring the ailing financial system may well be dragged into a lengthy debate internationally, and any radical changes may not come so soon.

Better die slowly than a sudden fatal heart attack, you bet!