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Debt Crisis: Led by the Fed, top central banks added dollars to the global financial system on Wednesday as Europe's crisis deepened. We hate to rain on anyone's parade, but this won't solve the EU's problems.
The central banks' bold action, though met with wild enthusiasm by financial markets, amounts to little more than a multibillion dollar Band-Aid on a deep, dangerous wound.
It also turns the U.S. Federal Reserve into Europe's lender of last resort — a dangerous precedent, and something we don't recall American voters approving, though they'll certainly pay up if it fails. Obviously the Fed, worried the EU's crisis will take down the U.S., thinks the risk is worth it.
We understand the fear. The central banks' coordinated move came after desperate European officials said they might boost the size of their $600 billion emergency bailout fund and seek financial help from the IMF.
Central banks also see signs of an EU credit crunch that could sink the world — and U.S. — economies.
As Reuters aptly put it, "investors are fleeing the euro zone bond market, European banks are dumping government debt, south European banks are bleeding deposits, and a recession looms, fueling doubts about the survival of the single currency."
As if that weren't enough, Standard & Poor's decided Tuesday to cut its ratings for many of the world's largest banks due to their exposure to the European debt crisis.
But even as they juggle and sell off their portfolios of bad loans, major banks in Europe, the U.S. and Asia are being forced to raise capital to meet new international banking standards. The result: a credit crunch.
In short, the global financial system is near collapse, and the central banks are madly pumping dollars into it to keep the collapse from happening.
It's an emergency, we get it. But while such actions might help in the short run, they won't in the long run.
The EU faces the same problems today as it did yesterday, and no amount of central bank money-printing changes that.
Namely, its 17 members, used to an ever-expanding welfare state and leisure-class lifestyle, can't sustain that way of life with their chronically weak economies and aging, low-productivity workforces.
Contrary to recent actions, the EU's problems aren't short-term and financial, but long-term and fiscal.
Unfortunately, EU leaders continue to debate the placement of deckchairs on the Titanic as the ship takes on water. In recent days, the EU has discussed plans for creating special eurobonds backed by all members of the EU; for the European Central Bank to print money and buy Greek, Italian, Spanish and other country debt; for the creation of special "insurance" for newly issued debt; and for tapping the IMF for bailouts.
In short, everything but what they should be discussing: Massive cuts in out-of-control government spending and an end to the EU's promise of cradle-to-grave security through its all-embracing welfare state.
The U.S. should learn from this charade. After all, we're on the same path. Neither the U.S. nor the EU will thrive until they address their real problem: too much spending and overreliance on government.
Environment: Sunday will be the 2,232nd consecutive day that the U.S. has gone without being hit by a major hurricane. This is a big enough deal to be covered by the mainstream media. But of course it won't be. On Dec. 4, a new record will be set for the number of days between ...
New Energy: The latest salvo in the administration's war on energy may be new rules and permits to regulate a process to get oil and gas from porous rock, sacrificing jobs and economic growth while under review. There are a few areas of the U.S. that are booming. Two of these are ...
Taxes: With unemployment chronically high, how does taxing more than a third of small-business income make sense? Politically, that's how. The Democrats' dead-on-arrival surtax is a campaign ploy, not a jobs strategy. At a time when leadership is sorely needed to get America back ...
The Supreme Court faces a discomfiting decision. If it chooses, as it should, to hear a case concerning racial preferences in admissions at the University of Texas, the court will confront evidence of its complicity in harming the supposed beneficiaries of preferences the court has enabled and ...
Class warfare is alive and healthy in elite parts of America today. Yes, elite. Only elites — a tiny fraction of a fraction of the American public — are able to camp in public parks denouncing businesses, while other elites in high government offices and the media discuss them. The rest ...
Posted By: Ellman(2530) on 11/30/2011 | 10:53 PM ET
Excessive spending continues to be the elephant in the room that nobody wants to acknowledge. Countries can finance spending by taxing, borrowing or printing money. Taxing and borrowing are disappearing as viable options, leaving only debasing the currency via monetary expansion. We are viewing desperate acts by anxious elites, who created this house of cards, and now tremble that it might collapse. Desperation will not lead to salvation but to disintegration embracing everyone.
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