October 3, 2007 (LPAC) -- The most dangerous thing in this crisis is to think that the central banks know what they are doing, a senior European financial source said today.

People in the markets believe that there is some sort of coordinated policy among the European Central Bank, the Bank of England and the Federal Reserve, based on an idea that they have the situation under control. This is extremely dangerous, the banking insider said. There is no coordination.

The fact that the Bank of England last month changed its stated policy of just a week earlier, to bail out the British mortgage bank Northern Rock, is what it appears to be: a policy flip-flop. They have no idea what to do and they are under tremendous pressure from the Banks to cut rates, he said.

But the belief that someone, somewhere knows what they're doing, is the only way one can explain why the markets go up. He said the reality is that the markets should collapse, and they will collapse.

The only thing more dangerous than believing that the central banks are cooperating, would be a situation where they are cooperating. If you have a coordinated policy by the central banks of cutting interest rates, the source said, then you will get a full, Weimar-style hyperinflation, referring to what happened in 1923 Germany.

A situation like this has never been seen before, the insider noted. We have a "triple A crisis," where a small bank in India can issue commercial paper and sell it, but Citigroup and all the other AAA banks in the U.S. and Europe can sell nothing. "This is historically unprecedented", the source said.

The dollar collapse is a catastrophe for Europe, because all the exports are priced in dollars. Under monetarist policy, the European Central Bank would buy up dollars, but they can't do this, because for every dollar they sell, the Fed is pumping more into the system.

Briefed on LaRouche's Homeowners and Bank Protection Act, the source agreed fully that this is the only way to go.