Five central banks coordinated major interest rate cuts on Wednesday: the U.S. Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada and Sweden’s Sveriges Riksbank. The intent is to reduce borrowing costs suddenly and thoroughly so as to give the Western economies a collective shot in the arm and overpower the effect of the credit crunch. Right now the root of the economic crisis is banks’ desire to hoard cash — they want to rebuild their asset sheets to insulate them from the subprime mortgage mess. Dropping rates makes it more likely that borrowers can meet payments, in theory alleviating banks’ fears and encouraging them to accelerate lending.

At the same time, the United States now has on the books a $700 billion bailout program designed to pull dud subprime loans off the books — allowing banks to exchange them for cash. That would, in theory at least, recapitalize the banks and remove the problem assets from the equation. That plus interest rate cuts and some other steps taken by the Federal Reserve and Treasury Department should — again, in theory — succeed in unlocking credit and stimulating economic growth.

The problem now is how to pay for this all in a remotely safe way.

The United States already runs a budget deficit (of similar size to the bailout plan), so this new $700 billion program is going to have to be paid for entirely on the back of borrowed money. That can be done one of two ways. First, the government can issue bonds. The question is: Who will purchase them? China and the Arab states of the Persian Gulf certainly have loads of currency reserves and would likely buy up a plethora of U.S. T-bills without even being prompted; they realize full well that a global recession torpedoes their own income streams, and it is always handy for the global superpower to view you as part of the solution and not part of the problem. All who participate would be certain to expect a certain amount of geopolitical back-scratching for their efforts.

It is not clear, however, that their monies are of the sort needed. Selling any assets they hold in Western markets is totally out of the question, as liquidating $700 billion in stocks to purchase $700 billion in bonds only moves the pain from one sector to another. It would be a wash. Likewise, any of this money held in Western banks — even if it is held in cash — cannot really be made useful. Pulling it out of those banks would simply intensify the credit crisis those banks already face. That leaves for consideration raw currency held in East Asia and the Persian Gulf itself. That is probably only a tiny fraction of the roughly $5 trillion that these states supposedly hold in their various foreign exchange, sovereign wealth and other funds.

That leaves option number two: printing currency not simply as part of managing the money supply, but doing so en masse to pay bills. Normally this option is something that modern states scoff at, as it can be wildly inflationary if it goes too far (think Zimbabwe and its 11,000,000 percent inflation rate, although Stratfor is not suggesting for a second that things will get anywhere near that bad) in addition to crashing one’s currency. But in a crunch it is an option, albeit a distasteful one. In a recessionary environment the likelihood of strong inflation is somewhat less, luckily, because demand is already suppressed. But the risk of unconventionally high inflation remains, and the system at present appears to be flirting with that risk. After all, lower interest rates are also inflationary.

Sharp interest rate cuts combined with printing currency is a bit like spraying a continual stream of gasoline on a dying fire. You will certainly get warmed up, but if you keep it up too long you will risk burning your house down.