Off the Cuff: The Pain In Spain Is Sending Europe Down the Drain

In this week's Off the Cuff with Mish & Chris podcast, Mish and Chris tackle:

• The Ongoing Mess That is Europe
  • Spain suddenly looks like it may exit the euro sooner than Greece
• The Future of the Dollar
  • While dollar bears have been burned in the short term, it doesn't mean they're wrong
• Why it's Still Smart to Hold Your Gold
  • None of the long-term fundamentals have changed

Europe's woes are increasing at an accelerating pace now. Fresh news out of Spain has caused interest rates on its sovereign debt to skyrocket — now approaching 7%. The euro has been weakening hard vs the US dollar. The various European leaders are at odds at how to proceed next. Except on one point: their intent to keep the Ponzi scheme going for as long as possible to avoid the losses that need to be (must be!) realized. 

Europe

Rumor and speculation are driving the news cycle these days. It's very hard to get a firm grip on what is happening. 

So looking at the data, we see interest rates on sovereign debt dangerously spiraling up in most EU countries, with the notable exception of Germany — which has an amazingly low 10-yr yield of 1.27% [note: Mish misspoke and quoted 0.87% in the podcast. 1.27% is the correct number.] The euro has slid dramatically in the past 2 months vs the US dollar. In short, the market is showing that confidence in a desirable solution to the eurozone credit crisis is evaporating fast.

And Spain has dominated the headlines in the past week for good reason. Spain does *not* want to go down the austerity road that has yielded nothing but pain and suffering in Greece and Ireland. If it does not get a backstop for its debt, look for PM Rajoy to take his country out of the euro (and try to inflate Spain's way out of its troubles)

The Dollar

The Fed is very reluctant to ease right now primarily, as Mish sees it, because it's not sure what impact more money printing will have. It's the only weapon left in the Fed's arsenal.