- September 1, 2009: Vol. 1, Number 8

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To Stimulate or Not to Stimulate

by Alex Eidlin

All one needs to stimulate an economy is to provide ample liquidity and incentives to lend and to invest. With investments generating positive returns, more interest exists for lending, and there is more spare cash to spend on consumer goods. Before long, an economy should be up and running again. With many tools available to central bankers, this task does not seem especially difficult.

A more challenging undertaking comes during and after the liquidity has been provided. The objective is to make sure the capital injected into the system is channeled into sectors providing the highest rate of employment and positive returns to investors. You also want to ensure financial institutions do not hoard cash or use it for speculative purposes.

Depending on the political and economic system, achieving this result is more likely for some countries than others. One might think centrally run economies, such as Japan and China, would provide a better environment for the gov

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