The cliché, ‘fighting fire with fire’, recounts the tale of people who have resorted to reacting in the same way in which they have been apprehended. In the recent memory, the Indian cricket team, in their last match down under, had resorted to unconventional method, when it chased down a massive 320 odd runs in 40 overs to keep their hopes alive of making it to the finals. Though the Indians are on their way back home, this method of ‘fighting fire with fire’ had done their confidence a world of good in a terrible journey down under.

Well, in the financial markets, it may be hard to borrow yourself your way out of debt, but sometimes it buys time, and time is money. One of the few major contributions to the European debt crisis is the ECB’s lending to the European banks. It buys debtor countries some time. It goes a long way towards making the European debt crisis a solution that doesn’t foreshadow a disaster tomorrow.

Cries of hyper-inflation resulting from printing money are already making the rounds. While some increases in inflation cannot be ruled out, the more likely outcome will be similar to the US experience. The combination of TARP’s injection of capital into the banking system and the Fed’s loans to banks and debt purchases brought similar predictions of hyper-inflation. The Fed’s actions may not have been sufficient to stimulate the economy sufficiently, but they were necessary to prevent a contraction precipitated by banks trying to get more liquid. The good news is that money has to be spent to cause inflation and it must be created to be spent. The bad news is that money has to be spent to stimulate the economy and feed a vigorous expansion and it must be created to be spent. There is no reason to expect the outcome to be different in Europe under similar circumstances.

Another disaster that was averted in the USA’s case is an abrupt decline in the foreign exchange value of the dollar. Money not created is not going to be spent on other currencies. The dollar may be called weak, but it’s not weaker than it was prior to the financial crisis and the actions taken to deal with it. It’s instructive to note that the Euro actually strengthened following this second round of ECB lending.

I know all this echoes like dissent, but the key is to keep counterfactuals in mind. What is seen is not much improvement. What is not seen is the disaster averted-for now at least!