For the best part of a year we have been warning of the dangers to the economy of the Cayman Islands of not having sufficient liquidity in the financial system.

Now, Cayman Net News has fallen victim to the current liquidity crunch, which has doubtless generated a degree of schadenfreude on the part of some in the community, but for those more grounded individuals our recent experience should represent yet another warning sign (not that one is really needed) that all is by no means well with the local economy.

When the previous administration first started talking about stimulating the economy though large infrastructure projects, hoping that the monetary benefits would eventually trickle down to the local working population, we warned then that such an approach would be wholly ineffective.

In fact, such a policy contained the seeds of its own downfall because the failure to stimulate local consumer spending by the provision of immediate liquidity only exacerbated the decline in government revenues, as residents and businesses spent less, which inevitably led to a drop in import duties and other fees collected by the Treasury.

Consequently, the infrastructure projects, which were to be paid for out of recurrent revenue, themselves ground to a halt as that revenue dried up.

To compound the liquidity problem, the new government stopped paying its local suppliers, including this newspaper for advertising and printing services, effectively taking even more cash out of a business community that was already in desperate need of liquidity to survive.

And then, to add insult to injury, the government wants to increase taxes on local businesses in order to bail itself out of its own cash crisis – with a far greater burden falling on the small, already struggling enterprises than on the larger more prosperous ones.

As we have pointed out before, this is a recipe for disaster and it seems that no one has the ability or foresight to find a way out, except to try to borrow more money, which Britain will not allow us to do anyway and, frankly, given the financial expertise hitherto on display in the Cayman islands, who can blame them for wanting to make sure our finances are in order first?

The experience of this newspaper in the current financial climate is by no means unique. Indeed, our situation has been greatly exacerbated by other small businesses locally being in the same situation of not having the cash to pay bills when due.

Just recently, we were told by one local business, “Sorry, we have to borrow money just to meet payroll, so we cannot pay you.”

And this is something that is multiplied many times over as local businesses cannot settle their accounts with each other.

Furthermore, some of these local businesses in similarly strained financial circumstances are also even more adversely affected by the failure of government to pay its local suppliers, thus making a bad situation infinitely worse.

And yet, these same small businesses that are right now having difficulty paying bills will soon be expected to find even more non-existent cash for the so-called business premises fee, substantially increased work permit fees and similarly increased import duties.

Some bright spark will say that businesses can pass on such increased costs to their customers but when consumers aren’t spending in the first place, -- as well as leaving -- what is going to prompt them to pay even higher prices?

And when much of the increased fees and taxes fall on overhead expenses such as rents and work permits, they have to be paid by the businesses concerned up front, regardless of whether or not it will eventually be possible to recoup the increased costs by way of increased sale prices.

Every other country that we have seen try to deal effectively with the global financial crisis has done so by getting money into the hands of consumers and businesses, whether by way of immediately increased government spending (mandated to be spent on national suppliers and contractors), significant tax rebates and grants, and deferred debt repayments.

The Cayman Islands is possibly the only country in the world that tries to solve a liquidity crisis by removing money from the economy and thereby reducing liquidity even more.

Governments usually remove excess liquidity from overheating economies. Our economy is currently so cool it will soon be frozen solid, with no realistic plans to thaw it out.