With stock exchanges everywhere getting a pummeling today the following notes (both via FT Alphaville) suggest that it may be time to get the tin helmet on and stock up on food.

From SocGen :

The crisis has stepped up and the inmates have taken over the asylum. The bailout we wished for so hard came and seems to have passed without having the desired impact…This is a much bigger crisis than the Lehman one, but the market has yet to recognise it. And just like the US authorities before it, the European authorities are way behind the curve.

From Unicredit :

The threat that contagion might eventually morph into panic and spiral out of control is very real, and the reaction of eurozone policymakers remains dangerously counterproductive. Demonizing markets, implicitly casting investors as heartless speculators against the tragic background of the Greek riots, is outright irresponsible and increases the risk of greater financial instability. Current bond yield spreads on peripheral countries do not seem unreasonable given the limited (if any) improvement in fiscal fundamentals since euro accession. In hindsight, it is the sudden collapse in bond spreads that immediately followed euro accession that seems irrational, and markets are now repricing sovereign credit risk across the eurozone to reflect the divergence in countries’ macroeconomic fundamentals over the last ten years. The familiar danger signals of market dislocation, however, are building up, and are a serious source of concern. Policymakers should act quickly to address the fundamental fiscal, economic and institutional imbalances, as these cannot be regulated away. They should act immediately, showing the strength and determination which are key to rebuilding market confidence. In the policy response to market tensions, timing is everything.

Having shown their hand at the weekend with the much anticipated Greek bailout, I have a feeling that none of the parties involved actually knows what else they can try to stop this getting worse. Everyone barring Germany has now racked up huge external debts by propping up the financial institutions and hosing money at the economy to try and stimulate growth and the results so far, after several trillion dollars worth of spending, are weak or non-existent growth and more pain for the biggest debtors i.e. the Sovereigns.

The big problem now is that whilst Germany isn’t suffering too much (financially speaking that is), it cannot possibly pay for all of Europe without coming under the debt spotlight itself. Likewise, the IMF (funded in a large part by the US which already owes the thick end of $11 trillion) cannot afford to pay for more than on or two Greek bailouts (as I wrote here a few days ago).

Is this the end of the non-gold backed fiat currency experiment?

It certainly feels from the markets and news that the game is up and will undoubtedly be a complete mess as it all unwinds. But rather a complete mess now than an utter disaster in a few years if the EU/IMF/US manage to once again paper over the cracks appearing all over their towering edifice of fiat currency debt.