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Welcome to the "Wolf Creek Pass" School of Monetary Policy

I don’t know if you folks remember that hit ditty: a humorous tune about two truckers attempting to manhandle an out-of-control 1948 Peterbilt down the “other side” of Wolf Creek Pass – a death-taunting section of U.S. Highway 160 where the elevation drops a hefty 5,000 feet in a relatively short distance.

The song’s two characters – a truck driver named Earl and his brother, who’s his partner as well as the song’s narrator – are taking a flatbed load of chickens on a speedy trip down this winding, two-lane Colorado highway. After the narrator gives Earl the above-mentioned warning, the ancient semi’s brakes fail.

From there on down, the narrator tells us that the brothers’ trip “just wasn’t real pretty.” The truck careened around hairpins and switchbacks, and then raced at an uncontrolled 110 mph toward a tunnel with “clearance to the 12-foot line” – with chicken crates sadly “stacked to 13-9.”

The drivers and the runaway Peterbilt “went down and around and around and down ’til we run outta ground at the edge of town… and bashed into the side of the feed store – in downtown Pagosa Springs.”

Believe it or not, I started thinking about this funny old country tune the other night – right after I’d read a piece about QE3 and the U.S. Federal Reserve.

As zany as it first sounds, the parallels are striking.

  • Featured Story

    Spain's Economic Crisis Shows the Eurozone Can't Escape its Debt Trap

    Fresh evidence of Spain's deepening economic crisis has revived fears about that nation's ability to dig out of its sovereign debt problems, and illustrates why the Eurozone debt crisis is likely to drag on for years.

    Spain's gross domestic product (GDP) was flat in the third quarter, the country's central bank said yesterday (Monday). That follows anemic growth of 0.4% in the first quarter and 0.2% in the second quarter.

    Even more troubling is the nation's unemployment rate, which rose to 22.6% in September - the highest in the Eurozone.

    As one of the PIIGS (Portugal, Ireland, Italy, Greece and Spain), Spain has been trying to wrestle down its high sovereign debt with austerity measures. Unfortunately, those measures are driving the Spanish economy toward recession, which is making it impossible for the government to hit its budget deficit reduction targets.

    "It will be very difficult to meet the deficit goals without additional austerity, which might push the economy back into recession," Ben May, a European economist atCapital EconomicsinLondon, told Bloomberg News. May thinks Spanish unemployment could go as high as 25%.

    Each of the PIIGS faces the same cycle of futility - economy-killing austerity measures that erode the nations' ability to cope with their debt issues, necessitating even deeper austerity measures.

    But without the economic growth to create the wealth to cope with the budget deficits, the Eurozone debt crisis will gobble the PIIGS up one by one.

    Like Greece

    In Greece's case, its faltering economy led to a series of bailouts from the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB), to avoid default.

    But the Greek economy is among the Eurozone's smallest. If the other PIIGS, particularly Italy and Spain, descend to where Greece has fallen, there won't be enough money to rescue them.

    "Unless European economies outgrow their deficits, the chance of rolling bailouts working is slim to none," said Money Morning Capital Wave Strategist Shah Gilani.

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  • economy of spain 2010