Much like the science fiction movies from the 80’s where artificial intelligence becomes self aware and threatens the world, artificial stimulus threatens Ireland’s recovery in much the same fashion.

Over the last few months Ireland’s baking sectors have undergone a massive change with the near complete collapse of AIB (Allied Irish Bank), an entity that the government has sunk an additional 3.7 billion Euros in during the month of December. This activity marked the ever expanding hold that the Irish government has on the banking sector, and is largely being seen as the way to assist the failing economy through recapitalization.

According to the World Economic Forum this is not the fundamental issue facing the struggling nation, a recent release cites the top 3 barriers to doing business in Ireland as:

1. Inadequate Supply of Infrastructure

2. Inefficient government Bureaucracy

3. Inflation

So how does dumping government funds and adding the inefficient government into a free market structure help to drive down inflation or improve infrastructure if the underlying monetary policy does not change, thus freeing up access to capital? What they are trying to do is create the illusion of prosperity through making a gamble with the public’s money and hoping that the perception of strength will inspire investors and governments to place their funds back in an ailing system and raise consumer confidence through pointing to solid cash positions of the banking sector (this is of course accomplished through removing the bad debts through NAMA, and then adding in Euros to strengthen the cash position). It is similar in effect to creating artificial stimulus, and then hoping that it lives and breathes on its own. This is the equivalent of a smoke and mirrors attempt to merely run the phantom perceived value up without increasing the value of the underlying asset, however this sort of activity runs the risk of the newly formed “artificial stimulus” becoming self aware and creating yet another derivative tool of a faith based economy…..similar to the advent of high frequency trading.

If the above challenges are the reality of those entities doing business in Ireland is additional governmental regulation of the nation’s banks the answer to the lack of infrastructure, the complexity of government, or inflation? A perceived value will not raise the value of Irish bond prices, as a savvy investor will see right through the illusion, however the perception will allow investors to run the prices arbitrarily based on faith alone. It is in short a gamble that aims at the perception catching hold and actually becoming the reality through acceptance by the population. The question however that the population must now ask themselves is if NAMA is the right entity to return on their investment in a timeframe adequate to meet the needs of the country. This should be evaluated using the aforementioned challenges as parameters, and a short analysis will identify that selling off bad debt will not move the needle on the top 3 barriers.

Cash flow is just as important in a business as the balance sheet, and if the government buys debts to profit in the long term, there are still short term liabilities that are coming due. Given the outlook for the deficient in the coming year and the GDP of Ireland it is hard to see where the additional revenue will come from with such a high unemployment rate and flat consumer activity forecasted in the coming year. This newly aware artificial stimulus will only move money around the board, draining each transaction little by little until the reality is that the non-value added movement of a false security is seen for what it is, leaving investors with only pennies on the dollar.