I was watching CNBC's "Squawk on the Street" the other day and one of the people on the show, I forgot who, asked a very good question about the European debt crisis.

The question was: “Why doesn’t the ECB just put a cap on the interest rate of Italian 10-year bonds of 7 percent?”

The person in the group who tried to answer the question was Jim Cramer, of "Mad Money" fame. His answer was fairly unintelligible but basically he said that Italy was a very big country.

It wasn’t much of an answer to what is actually a great question that gets to the heart of the problem.

The real answer is that the ECB could do just that. It could simply announce that Italian bond rates wouldn't be allowed go above 7 percent.

The ECB would simply buy whatever amount of bonds it takes to make sure the rate never rises above 7 percent.

More to the point, it could do the same for Spanish and Greek bonds. It could further reduce the debt crisis by limiting interest rates on those bonds to 3 percent — an amount that would greatly reduce funding pressure on all those countries and greatly reduce pressure on the banks, individuals and institutions that lent those countries the money. The European debt crisis would be effectively solved almost overnight.

So, what’s the catch? Why is the ECB so reluctant to do that even though it would be an almost instant and easy-to-implement solution?

What is behind their reluctance to delay solving what is an increasingly large and destabilizing problem for the European and the world economy?

The ECB has already bought over $250 billion worth of bonds. That’s a pittance compared to the more than $2 trillion worth of bonds that the Federal Reserve has bought.

Of course, they recently gave European banks over $600 billion to essentially buy bonds and bolster their liquidity. But that was done reluctantly as was the bond buying. Lots of kicking and screaming by the ECB.

Why such reluctance to implement such an obvious and effective solution?

If they would simply buy $2 trillion worth of bonds, like the United States, the European debt crisis would be greatly reduced.

Anybody who was nervous about holding bonds could simply sell them to the ECB. Anybody who is nervous about buying bonds would take comfort that the ECB is always there to buy back their bonds at a good price. It’s a perfect solution. Why the ECB isn’t jumping on it is truly baffling.

Could it possibly be that the ECB is worried that printing such large amounts of money will create inflation? Why don’t they take comfort knowing that the Federal Reserve has printed much more than they have with no significant inflation? Doesn’t that prove that printing money won’t create inflation?

Could they possibly think the Fed is wrong and that their money printing will eventually create inflation? It seems that few investors, especially bond investors, think money printing creates inflation or at least are willing to talk about it.

But the ECB’s actions and its reluctance to act (and buy whatever amount of bonds it takes) sure seem to indicate that they are worried about inflation. So much so that the ECB is willing to let the European banking system exist in a continuous state of crisis rather than solve the problem.

Given that their primary duty is to protect the European banking system that shows a lot of fear of inflation. Clearly, Germany’s experience with inflation and its heavy influence over the ECB is having a big effect. But if the ECB is so worried, then why is the Fed so comfortable with its much larger money printing efforts? Why isn’t it like the ECB?

I’ve always wanted to ask Mr. Bernanke at what point does money printing create inflation. If $2 trillion won’t do it, does $3 trillion, $4 trillion or $5 trillion? How about $10 trillion? He seems so certain that money printing won’t create inflation, but he is also concerned about slow growth in the economy and the budget deficits it causes. Then why doesn’t he just stimulate the economy with a big $10 trillion round of money printing? If it doesn’t cause inflation, as Ben always likes to point out, then just do it!

But he is reluctant and that shows his true fear that it will create inflation.

But Ben is a fairly easy sale when it comes to printing money.

If push comes to nudge, he’ll print rather than face a big financial problem.

The ECB is a bit different, so push will HAVE to come to shove before they will print. But my bet is that both the ECB and the Fed know what they are doing is risky. They both know it is hard to pull money back out of the economy once they have put it in. They just don’t want to talk about it. They know a lot more than what they are saying. And, more importantly, they think they can get away with it.

It’s a lot like Bernie Madoff. He knew what he was doing was wrong. He just thought he could get away with it, at least for a while, and maybe a long while. After all, he was chairman of NASDAQ and was very well respected.

The Fed is hoping the same. Bernie was worried that someone would find him out and blow the whistle. But no one did. In reality, no one was that interested in blowing the whistle on him, including the SEC. So, he was found out only when his scheme blew up. That’s my guess for what will happen to the Fed. They won’t be “found out.” Not many people are that interested in blowing the whistle on the Fed. They want the money printing scheme to succeed not blow up — just like Bernie Madoff’s clients.

So, in the end, the United States is a lot like Bernie Madoff’s clients.

Investors all want the Fed’s money printing operations to succeed. That’s part of the reason the stock market jumps so much any time they print money.

Everyone is cheering on the guy who is making life good for investors, whether it’s Bernie Madoff or Enron or the Fed.

We don’t want them to fail, we want them to succeed. But the strategy of printing money to bail out the bubble economy and bad loans in Europe or in the United States is fundamentally flawed and, in a sense, we all know it.

If it isn’t flawed, why doesn’t the ECB just cap 10 year Italian bond interest rates at 7 percent? It really is a great question.

About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $200 million under management. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles. Discover more about his latest book, "Aftershock," by Clicking Here Now.

© Moneynews. All rights reserved.