Confidence, or what Keynes called “animal spirits”, is vital for economic health. It takes confidence for businesses to hire workers or invest in machinery and equipment; managers need to believe the economy will be strong enough to make such investment justified. It takes confidence for savers to put their money in the bank, on the assumption the bank will be around to return it to them. It takes confidence for consumers to take out loans to buy houses or cars, on the assumption they will be employed long enough to pay the money back.
As markets continue to plunge everywhere, officials in Kuwait continue to insist that all is well. The world is going through a financial crisis and we are not isolated. Wouldn't it be better if officials admitted this and pulled all the resources to ensure the safety of our financial system, even as a precautionary measure?