Spend Money!

When you ask around, no one will give you a definite answer of when did the financial crisis hit the markets. Even though some would say that its effects were visible in the year 2008, I wouldn’t say that this is when the crisis was, in a way, initiated. Just as its origin can be argued, its causes can vary based on the region, or more specifically the country. One cause which seemed to be reliable enough to believe is the wrongful hedging that was carried out by different companies. Besides that, there are also all of the investment funds that were established, but only good enough for markets that existed in “Lala Land” to begin with. If you ask me, I don’t think we have seen the true impacts of the crisis yet.

In the movie “Arthur”, Russell Brand provides a very naive though logical solution to the crisis. Even though he sarcastically started withdrawing money from the ATM and distributing it to random people; this might actually be the solution only if we assumed that we live in a simple world in which a simple equation would lead people to react in the way that we want them to. In contrast, his irony presented a theory that says nothing but “spend money!’ This is the exact opposite of what governments are doing and is the reason that I said earlier that we haven’t seen the true effects of the crisis yet. In countries like Italy, Spain, Greece, and others; they haven’t provided any ultimate solution to the problem, rather their financial trouble got escalated. If any, it will make their current situations even worse.

What happens when governments cut down spending and use tax revenues in bailing out companies? There is less money circulating in the economy and so less money available for consumers to spend; from which they still have to pay taxes and additional taxes to bail out companies that are going bankrupt anyways. And the latter are going bankrupt because consumers do not have the money to spend on their products and services in the first place. If you read my last sentence one more time, you would notice that it’s nothing but a loop. When government spending is reduced, there will be less money in the economy, consumers will spend less, companies will go bankrupt, employees will turn into jobless consumers who can’t pay taxes, more companies will go bankrupt and perhaps governments like that of Iceland. Despite that this might be exaggerated, it’s actually the case!

To conclude this article, the solution might actually be spending money rather than refraining from doing so. This is what has been happening in many countries in the GCC region as governments bailed out consumers rather than companies, deposited lump amounts in various bank accounts, and increased salaries by insane percentages to promote the consumers’ economy. The main objective here is to limit the effects of the crisis and initiate recovery by increasing inflation which normally increases when money supply increases. Is that bad? Not really; since economies worldwide are going towards lower inflation rates that is below their original levels. This sounds quite crazy as a theory especially that it isn’t tested, but did the economic and monetary policies applied recently by governments work anyways?