Markets are volatile overnight as the curtain rises on the next act of the European political theater begins with a promise of a solution to the Greek (and other PIIGS) debt crisis “soon.” Politicians really, really do not like reality. Sooner or later, however, the lies get swept away by events and it looks like the broom is out. Once you take away, or even cut back, the flow of OPM (Other People’s Money) into these economies the lack of any real basis for economic development is revealed. Data yesterday showed that the  Greek central government’s deficit widened 28 percent in the first half of 2011, with spending above target and revenue below. The central bank of  Portugal said it expects the economy will contract 2% this year and 1.8% in 2012. And so on. The “pumpers” are at work though, rescuing the futures in an attempt to paint a rosy picture. Will it work? Maybe for a day. Or a week. Or a month. Who knows? But in the end gravity will win.

Fall-out from Greece flattened Portugal and Ireland last week. It is engulfing Spain and Italy, countries with €6.3 trillion of public and private debt between them.

Yields on Italian 10-year bonds hit a post-EMU high of 5.3pc on Friday. This is not just a theoretical price: the Italian treasury has to roll over €69bn (£61bn) in August and September; it must tap the markets for €500bn before the end of 2013. The interest burden on Italy’s €1.84 trillion stock of public debt is about to rise very fast.

Spanish yields punched even higher, through the danger line of 5.7pc. The bond markets of both countries are replicating the pattern seen in Greece, Portugal, and Ireland before each spiraled into insolvency. And the virus is moving up the European map. French banks alone have $472bn (£394bn) of exposure to Italy and $175bn to Spain, according to the Bank for International Settlements.

Of course, in the U.S. we have our own political theater featuring the so-called “debt limit.” Krugman and his ilk are saying that cutting spending will hurt the man in the street, when in fact, as the previous post shows, all it will hurt is the flow direct from the taxpayer to corporate profits. It is time to rein in government, not just in the U.S. but everywhere. Big government may have overspent and damaged economies in a myriad of ways, but worst of all it has choked off investment by encouraging over-consumption. Now the stifled economies can’t produce enough money to sustain big government’s spending habits. As Sarah Palin writes, “The Sugar Daddy Has Run Out Of Sugar.

See, Washington is addicted to OPM – Other People’s Money. And like any junkie, they will lie, steal, and cheat to fund their addiction. We must cut them off and cut government down to size.

Amen. You can have big government successfully – much of Scandinavia does – but only if you are willing to pay for it. And that implies a degree of social consensus that simply does not exist in most places, as “diversity” translates into factions competing for loot. People are willing to pay when they see real social value – but not when they see their money being funneled to others who do not deserve it in return for political favors or spent in ways, such as wars, that don’t enjoy broad support.

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