Fed Leads Other Central Banks In Applying Band-Aid

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.