Last week many Wall Street investors were duped into believing the European debt crisis was well on the way to being solved. That's because six central banks led by the Federal Reserve made it cheaper for foreign banks to borrow dollars in case of emergencies. Stocks and commodities rallied as the U.S. dollar fell in the belief that the Fed was somehow committing to purchasing huge quantities of European debt. But last week's move was only symbolic in nature and very short on substance. Making dollars less expensive to borrow over in Europe does nothing in the way of lowering debt service expenses or reducing the debt levels of fiscally challenged nations.

However, in reality this week could be the most important and volatile seven days in all of 2011. The European Central Bank will most likely make a crucial decision as to whether or not they will monetize massive quantities of insolvent European debt without sterilizing those purchases. ECB head Mario Draghi has already lowered the interbank lending rate one quarter point in his first few days in office. Now he is expected to take interest rates down to 1% after next week's meeting. And in addition, if the European Summit meeting next week yields an acceptance to broad-based austerity measures, the ECB may finally assent to purchasing PIIGS' debt in unlimited quantities and duration.

That action will temporarily send sovereign debt yields lower and the Euro currency higher. And the major averages will celebrate the Pyrrhic victory. However, if the ECB holds the line on interest rates and refuses to monetize distressed debt the crisis will intensify greatly. In the latter case, bank failures will ensue and European money supply growth rates will plunge. Meanwhile, commodities prices will fall along with equity values across the globe. A deep recession would result from the eventual default of over two trillion Euros in debt.

In contrast, a sharp recession would be the best option to pursue as it would allow insolvent debt to finally be written down. A straight forward default on debt would be a much better option than defaulting through inflation. By the ECB keeping a strong and stable Euro, banks and nations would be able to slowly recover after a truncated period of distress.

Unfortunately, what is more likely to occur instead is central bank intervention the likes of which we haven't seen since the end of WWI. But what Wall Street egregiously misunderstands is that central banks are incapable of solving the bankruptcy of Europe by printing money. Creating inflation on a massive scale will crush GDP growth while eventually sending interest rates spiraling out of control. The only winners in that case will be those that own inflation hedged portfolios--especially those who own gold in the European currency. Pay very close attention to what happens in Europe next week. Your portfolio depends on it!