Will the Folly of Central Banks Lead to a "System-Wide Crash"?

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Will the Folly of Central Banks Lead to a "System-Wide Crash"?
How Lenders of Last Resort Encourage Financial Imprudence

By Bob Stokes
Tue, 26 Jul 2011 17:15:00 ET

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We all admire the young adult who works to pay his or her way through college.

They often do so out of necessity. Too many parents have too little money to cover tuition.

These hard-working college students also know how to be prudent with their money and their time. After all, their money pays for the education. They have no one else to fall back on. They have to get the most out of their education.

Of course, a student whose tuition is paid for by parents can also be a hard working person with a fine career.

But a student who is given a car and spending money is more likely to have time to "party" -- and be less prudent. They can usually fall back on their parents if they need more money -- and they generally do.

Is this logic really any different for financial institutions? Or is it downright obvious that they'll be "less prudent" in their practices when they know there's a "lender of last resort"?

In the U.S. the "lender of last resort" is the Federal Reserve. In Europe it's the European Central Bank.

We know that reckless lenders and even nations have had to "fall back" on them.

Adults know that the "teen-agers" can make unwise spending choices. But what are the assessments of the "parents" in the financial realm, namely, the Federal Reserve and the European Central Bank?

Let's start with the Europe:

"One leader who lived through a debt collapse did not mince words. In a recent commentary Mario I. Blejer, former central-bank governor of Argentina, offered the following assessment of Europe’s troubles (Bloomberg, 5/30 and 5/31):

“'One of the undeniable features of the European debt crisis is the tendency to obscure, verbally and politically, the real issues at play. Euphemisms, statistical gimmicks, meaningless institutional squabbling, undecipherable acronyms, and plain double talk proliferate as part of the debate.'”

Elliott Wave Theorist, July 2011

Another Theorist excerpt addresses the Federal Reserve:

"The Fed Chairman is being increasingly criticized, and the Fed’s policies and acumen are being increasingly ridiculed. Recent media reports have derided QE2 as a failure. Pundits have calculated that the jobs 'created' by QE2 cost about $800,000 apiece."

As EWI's Robert Prechter says in the July Theorist, "Lenders of last resort are a folly. All they do is ensure a system-wide crash."

As European bailouts become "politically questionable" and the Federal Reserve continues to lose credibility, what's next for the economies of Europe and the United States?

Should Americans and Europeans anticipate an entirely new economic trend?

Much of the latest Elliott Wave Theorist is devoted to answering these very questions. Read it for yourself risk-free.

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Inside Bob Prechter's July 2011 Elliott Wave Theorist ...

The Demise of
"Printing Money at Will"?

The ability of central banks to "print money at will" explains why many investors have a deeply held fear of inflation.

It's true that central bankers sometimes drop not-so-subtle hints to reinforce this perception -- such as Ben Bernanke's 2002 "fighting deflation" speech, when he said that if necessary, the Fed would get the public to spend with a "helicopter drop" of money.

Well, that symbolic "helicopter drop" has been in flight since 2007. But now the so-called "drop" is over. The printing presses have gone silent. It's time to look at what's happening right now -- and what will follow soon.

Real events point to real financial trends. In the just-published Elliott Wave Theorist, Bob Prechter has chronicled an astonishing rush of recent events which point to a "gathering storm"... KEEP READING>>

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Tags: bailouts, Ben Bernanke, central banks, debt crisis, european central bank, European debt crisis, European Union (EU), Robert Prechter, U.S. Federal Reserve (the Fed)

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