Last week held bad news regarding a disastrous auction of U.S. Treasury notes and bills--our government couldn't sell all the debt needed to fund spending and had to buy the debt back with money from the Treasury (newly "printed" money). The result was a very rapid escalation of the interest rate on government debt--it was slightly over 4% this morning, up from 3.59% in early February.

Today Alan Greenspan said that averting a situation where the U.S. struggles to finance unprecedented budget deficits "is more urgent than at any time in our history," in testimony Thursday before the U.S. Senate Committee on Homeland Security and Governmental Affairs. Greenspan painted a grim picture of a U.S. government facing difficulty financing the deficit, saying that high debt servicing costs would add to the deficit, creating a vicious cycle leading to yet higher debt servicing costs and higher deficits. He testified that high long-term interest rates wouldn't only push up mortgages rates, but also weigh on stock prices and crowd out business investment. "I would be very fearful of the ability of the business sector to borrow and invest," Greenspan said.

Then the article in today's Wall Street Journal entitled, "Greek Bond Yields Soar to 7.1%". The article states that rates on Greek bonds have escalated quickly as the result of "market concerns over domestic capital flight and the country's inability to fund its budget deficit without aid from the International Monetary Fund." The article goes on to explain that "...the high rate of interest Greece has had to pay on its recent bond issues supports concerns that investors could be hard to attract to future debt issues to fund big budget gaps."

Greek banks are facing a wave of cash deposit redemptions by the country's most wealthy citizens and corporations. At the same time, the value of the Euro is plummeting. It lost 1.5% against the Yen in only one day last week, a huge move in the foreign exchange markets. The dramatic weakness in the Euro will make it much more expensive for Greece (and all the other EU countries) to pay for their imports. But it will also make foreign-produced goods cheaper to buy in the U.S. It might be a "race to the bottom" between the US$ and the Euro, with the issuers of both currencies battling to protect employment and economic activity in their home countries.

The money provided to Greece by other members of the European Union is not enough to finance Greece's deficits and the Greek government has contacted the International Monetary Fund (IMF). The IMF has told the Greek government that they will only be a lender of last resort and that there will be significant cost-cutting requirements placed on the country if the IMF is ever called upon to provide funding. The IMF will have a team of people in Greece for the next few weeks studying their budget in preparation for telling the Greek government where and when it will have to cut spending.

Folks, I've mentioned this here before. You are NOT going to hear this kind of news from any of our elected political leaders. They're too busy arguing about their respective political ideologies and positioning themselves for re-election in the fall. Not trying to be a "glass half empty" kind of guy, I'm suggesting to all of you to pay attention to what's happening in the sovereign financial markets. The developments are very likely what's going to be happening to the U.S....and us! It's only a matter of time.