Injecting liquidity into the system not enough

Developed countries have still not recognised the onset of a market crash and are proceeding instead on the assumption that injection of liquidity into the system is all that is needed, an Indian economist has warned.     

The injection of liquidity is inadequate in a situation where a recession has already started and credit would not start flowing simply because banks could access more liquidity, Prof Prabhat Patnaik of JNU's Center for Economic Studies and Planning said on Thursday.    

There must be adequate demand by solvent and worthwhile borrowers for credit to launch viable projects and that is is not happening, he said, participating in a discussion on global financial crisis here.     

Patnaik said the problem is that real lives of millions of people were determined by the whims of "a bunch of speculators" under the free market system who were interested not in the long-term yield on assets, but only in the short-term appreciation in asset values.     

Furthermore, he said, the current need is not just for injection of liquidity into the world economy, but also the injection of demand. That could occur only through direct fiscal action by governments around the world.