I am not an economist. But I have a basic question regarding the current financial crisis.
Why the financial system of a country is liquid? To put in other way why a country cannot increase the volume of its currency to overcome financial downturn?
Every country has its own currency. That currency is also released by its own country. Then why is it not possible? It sounds rediculous.. Even thinking about it I laughed at myself!!!
Let me put it by an example. Suppose a country has a total of x unit of its currency. All this currency would have been printed or manufactured by an institution of that country. A general person or lets say bank has y unit of that currency. If that institution releases additional nx unit of currency and distribute it to that person or bank then the total currency with them will be proportionally incresed by ny amount. Now they can invest or spend ny amount in other countries as the currencies are interchangeable. People want money to fulfil their basic needs as well as to do what they want. They can do anything with this money as the world is open.
I agree that we have limitation of our exports. We cannot export money in lieu of commodities. Every country has the limitation of its resources but an independent country can release money to buy anything they need from a country where that resource is in surplus. What is the limitation? Everything comes at a price!! Some at high cost and some at low.
Well the answer may be here. Population is increasing and resource is limited. We cannot stop time to make population stagnant. Nor we can increase the resources of the world as a total. A country cannot export more by reducing its consumption lower than a threshold. So the total consumpion is limited to make resources sustainable for future use. If inbalance occurs it may create havoc in the world.
But coming to the present situation in US, the crisis is due to unavailability of liquidity. Can America do this tricky thing to overcome its crisis? Who will regulate? If they print huge amount of dollars and inject it to bank then everything will be fine for them. Can they do it for short term solution to make suffer other developing countries in long term? Let's wait and watch!!!