Cartoons

Intravenous Finance

Governments around the globe launched aggressive schemes with speed induced by shear panic over the weekend in order to stop the global financial meltdown. Central banks in Europe and America will now guarantee a veritable stew of rotten bank loans and governments will purchase equity stakes in many of these retched and limping debt-peddling institutions.

The global financial system is still in intensive care. And the true effects of central banks’ efforts will not be seen until American banks reopen tomorrow after the long holiday weekend.

Even if a sense of normality returns to the banking system, the amount of money flushed down the toilet on bad loans, coupled with the mountain of taxpayer funds being shoveled in to fix the mess, will deprive the global economy of future economic growth. Money that could be used to build productive assets will instead be used to pay interest on debt issued for the cleanup and restructuring of the world’s banking system.

The coordinated rescue of the financial system caused stock markets to sprint today, like a crackhead on a sugar high, but the global economy will be sucking wind for years to come.

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© 2008 Splendid Marbles.