We are steamrolling toward a massive global debt meltdown, and at this point world leaders seem to be all out of solutions. Over the last 30 years or so, the greatest debt bubble in the history of the planet has produced unprecedented prosperity in the western world. But now that debt bubble is starting to burst and the bills are coming due. Many believe that "ground zero" for the coming global debt meltdown will be in Europe. Unlike the U.S. and Japan, the nations of the EU can't just print more money to cover their debts. Nations such as Greece, Portugal and Italy must repay their debts in euros, and those nations are rapidly getting to the point where their debts are going to overwhelm them. Unfortunately, major banks all over Europe are very highly leveraged and are also very heavily invested in the sovereign debt of nations such as Greece, Portugal and Italy. If even one EU nation defaults it will start tipping over financial dominoes. If more than one EU nation defaults it could cause a cataclysmic wave of bank failures all over Europe.
But Germany and the other more financially stable countries of the EU cannot bail out nations like Greece, Portugal and Italy indefinitely. Pouring money into Greece is like pouring money into a black hole. When you take money from financially stable countries and pour it into hopeless messes, you may stabilize things for a little while, but you also cause the financial condition of the financially stable nations to start deteriorating.
Right now, the yield on 2 year Greek bonds is up to 44%. Basically, the market is screaming that these are horrible investments and that they will almost certainly default.
Greece cannot fire up the printing presses and print more money, so they are now totally dependent on others to bail them out.
If Greece does default, it is going to have dramatic consequences all over Europe. For a chilling look at what could potentially happen when Greece defaults, just check out this article by John Mauldin.
