Does government interference help in financial crises?

Which single aspect of the complex mess of financial and economic crises supposedly coming to a head is absolutely certain? The answer is that governments will not solve these problems. They never do. At best, palliatives will be devised, interim solutions found and some of the worst consequences of fiscal default, or similar, will be avoided.

Yet when European leaders battle over how to settle their budgetary problems, they claim to be moving towards a solution that goes further than short-term measures. The same is said about their efforts to "save" countries like Greece and Spain.

Meanwhile in the US, legislators and the President are playing an elaborate game of brinksmanship to prevent the nation toppling over the so-called "fiscal cliff".

At best, there will be a last-minute deal in which politicians trade concessions with each other and the US Treasury lives to see another day, or at least, the next crisis.

In both Europe and the US, the focus on tackling fiscal problems is plagued by an enormous degree of fetishism about debt. Take the example of Britain, struggling to recover from recession. There, the government relentlessly talks about debt, while setting aside other issues. Yet British public debt remains at levels lower than that which prevailed for most of the past century.

Moreover, as US economist Paul Krugman has pointed out, "Debt is one person's liability and another person's asset." Crises emerge when everyone is forced to pay off their debts at the same time, which is around the time that people start worrying about the biggest holders of debt: the banks. Banks and other financial institutions have become increasingly reckless in the manner by which they acquire assets, also known as debts, and this makes them more vulnerable to collapse when markets lose confidence in the worth of these assets. This is what happened in the big crisis of 2008, and it's what has happened before.