Personally, I have changed my mind on Greece. My initial reaction earlier this year was that it had to be saved to avoid a sovereign Lehman. Many posters on this blog cried “shame”, saying it was just another moral hazard rescue for bankers. They were right. I flagellate myself and wear a dunce’s hat.

The correct policy would have been – and still is – to help Greece out of its debt-deflation death spiral through an orderly “pre-emptive debt restructuring” along the lines of the IMF package for Uruguay. In Greece’s case it would require a haircut of 50 per cent or so for foolhardy creditors, ie your bank and mine, your pension fund and mine. This would not do much good unless Greece also devalued by 30 per cent to 40 per cent to retrieve competitiveness and put the whole fixed-exchange nightmare behind it.

My God, one of the chief money-printing apologists for the world has finally woken up and discerned that it won't work because it mathematically can't!

It took The Senate slamming its fist on the table and saying "NO DAMNIT!" to do it, but happen it did.

Then there's this:

This time the concern isn’t about subprime mortgages or exotic derivatives, it’s about banks’ holdings of bonds sold by European Union governments including Greece, Portugal and Spain. Pledges of $1 trillion in EU aid have failed to shore up the euro or dispel doubts about the region’s finances.

That's because what was done could never work in the first place.

Josef Ackermann, the chief executive officer of Germany’s largest bank, said in an interview on ZDF television last week that it’s imperative to avoid a restructuring of Greece’s debt for now, even as he expressed doubts about the country’s ability to pay back its borrowings in full.

You mean it's imperative that his institution, among others, is not forced to recognize losses on bonds that they bought and then held no reserves upon, flipping them through the magic of repo lines so as to "lever them" to the moon.  As such there have been no reserves held and there is no margin.  Further, due to the "wonderful transparency" of the European banking system we have no freaking clue exactly how bad it really is!  Their governments won't force accurate and honest disclosure just as ours has allowed intentional lying about balance sheet "assets" and off-balance sheet garbage.

Here's reality folks - despite the "monetarist" view that nations can spend whatever they wish by borrowing it and "deficits don't matter", in point of fact they do matter.  Eventually people discern that you're unlikely to pay in full and the interest rate demanded goes up.

When this point is reached the "adjustment" in market rates does not come slowly or with lots of warning and time, just as it does not when the credit card company jacks you to the moon.  It comes all at once, "in your face", and without warning.

The United States had better learn from this before we get to experience it.