Never Been to Spain

It's probably not just the ladies that are insane there.  U.S. markets are taking a bit of a hit today because the reality of the EU problem is not succumbing to the smoke-and-mirrors remedy.  Spain and Italy are a much bigger deal than Greece:

Spain saw borrowing costs rise and demand for its government bonds decline in the first auction since unveiling its latest austerity budget last week. The average yield on three-year paper came in at 2.89%—up from 2.44% in a previous sale in March. 

To put that in perspective the yield on 3-year U.S. Treasury bonds is 0.5% as of today.  What it means is that paying the interest on government bonds becomes prohibitively expensive.  Government can no longer be financed by debt and servicing the debt increases the debt load.

He added that there is a risk Spanish yields rise to a level where it gets too expensive to borrow money in the credit market and a contribution from the euro-zone rescue fund may be necessary. He also pointed to Italy as a concern. 

“If Italy and Spain need a bailout we’re talking about a major disaster,” De Leus said. “The rescue fund is not big enough for that.”

This is bad in Europe, and it has potential global repercussions, but it can easily come to a North American nation very near you.  In fact, if there is no course correction and barring the development of a perpetual motion machine or other technological advancement or unforeseen calamity, it is coming to America.

In their last meeting the Fed supposedly took further quantitative easing off the table.  But that is pure BS.  Bond-buying is still going on, if not by the Fed directly, by many banks with the same intent of boosting the money supply.  Inflation is real and growing and the markets know it, maybe not explicitly, but they know just the same.

Commodities are being beaten back a little today, which is what the Fed was hoping, but probably by the impending collapse of EU growth more than anything else.

In yet another potential harbinger of doom, the Austrian Central Bank has joined Bundesbank of Germany in rejecting bonds from the bailed-out nations of Ireland, Greece, and Portugal. 

The Bundesbank was the first of the region’s central banks to make use of a change in European Central Bank collateral rules announced on March 23. The ECB no longer obliges members to accept bank bonds guaranteed by governments “whose credit assessment does not comply with the benchmark for establishing its minimum requirement for high credit standards.”

 On the face of it, in terms of actual numbers, this isn't a really big deal since the banks usually get the loans via their own central banks anyway.  What is does signal is that monetary policy is decentralizing within the EU.  It is a baby step, perhaps, foreshadowing the eventual death of the euro.