In what can only be described as a continuation of the moral hazard associated with government bail outs of banking and financial institutions after crises caused by previous bail outs of banking and financial institutions, last night the European central bank and the US Federal Reserve injected significant liquidity into the banking system (essentially printing money and loaning it out to banks at cheap rates). This action may stave off a credit crunch in the ultra-short-term, but it undoubtedly creates more foliage in the jungle of “fake free markets” that we now exist in.

When central banks, in a fiat system, print money to cover the errors of the banking establishment in terms of covering risk, further risk is inherently brought into the system. Activities like these simply postpone, and eventually make worse, the eventual adjustments that MUST take place in an operational free market economy for it to function properly.

It is a sad state of affairs that our entire global economy is so ridiculously leveraged to the fiat mode of thinking, that one small period of a few months of increased risk, would cause utter panic in the heart of global central bankers. What a sham.

Click here to read a very telling Bloomberg article on the subject.

Click here for a quality analysis by Mike Shedlock.

Filed under: Politics, Social Mood, Economics