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Prechter on Europe's Debt Crisis: A Fuzzy Picture Made Clear
Recognize What the REAL Problem Is

By Robert Folsom
Tue, 19 Jul 2011 18:00:00 ET
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"The European Union was supposed to unite Europe by providing a common currency and a lender of last resort, the European Central Bank. Lenders of last resort are a folly."
This quote is from the July issue of The Elliott Wave Theorist, in a section titled "Twilight of the Financial Engineers." It's fair to say that anyone who has followed Europe's debt crisis would probably be stunned by the idea that lenders of last resort "are a folly."
After all, there's been a rising flood of debt-crisis stories in the news since early 2010: the European Central Bank has repeatedly organized major bailouts. Yet as you keep reading the quote from The Theorist, you recognize how that is the problem:
"All they do is ensure a system-wide crash. When there is no lender of last resort, depositors and bankers have to behave prudently. In a free market, if they were to act imprudently, their competitors would take away their depositors and clients. When there is a lender of last resort, everyone is encouraged to act imprudently until the credit system fails."
Whoa. Another stunning comment, but this time it's stunningly obvious common sense. It identifies the real problem and at the same time offers the real solution. There's more:
"A recent opinion piece on Bloomberg said, 'The euro has turned into a bankruptcy machine.' (Bloomberg, 11/16) Iceland collapsed, Greece is imploding, Ireland is failing, Spain and Portugal are on the brink, Italy and Latvia are weak, and Germany and Finland are fed up. And Europe is not isolated. When the world is loaded with debt, the failure of any major sector imperils everyone. It’s like an unsecured mountain climbing chain. If one guy falls off the ledge, everyone is going down."
You could read countless descriptions of and opinions about Europe's debt crisis, but none would be as straightforward and rational as what Bob Prechter just published. It's like he adjusts the camera lens to make a fuzzy image become clear.

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