The Dow rose 150 points yesterday. We’re not sure what to make of it. Does it mean we were wrong about the beginning of the end? Are we still in the middle? Or is our whole theory wrong?

Hold your horses, dear reader. We’ll have to wait to find out.

The papers attributed the big upward thrust in share prices to news from Europe. The specific fact that caused the swing to profit had to do with Jean-Claude Trichet’s travel plans. He was in Australia for one meeting; now he’s coming back to Europe early so he can partake of another.

What has caused him to call his travel agent is a problem centered in Greece. The Greeks are in a jam. They spent too much money in the bubble years. Then, they saw their tax revenues disappear in the bust.

Sound familiar? It should, because the same could be said of most of the US states…and most of the world’s countries, emerging markets excepted. They all spend too much. Almost all run deficits. And almost all their deficits are getting bigger and bigger.

So far, the big economies don’t have a problem. Lenders think they are good for the money. Almost miraculously…or supernaturally…the USA – the world’s biggest borrower – is able to obtain financing for 10 years at less than 4% interest. Since the official inflation rate is 2.7%, that means lenders give up their money for a real rate of return of just a little over 1%.

It’s the little economies that have trouble. They don’t have printing presses of their own. Like California or New York, ultimately, they have to balance their budgets. They can’t inflate their way out of trouble. So, when their backs are to the wall they either get tough and cut expenses rudely. Or they go broke…default…and then have the cuts forced upon them.

The focus of this week’s discussion is the PIIGS – Portugal, Ireland, Italy, Greece and Spain. Together they’ve got about $2 trillion worth of debt. And lenders are making it more expensive for them to borrow more. If this continues, they’ll default. And then, say the financial authorities, terrible calamities will happen. The whole European financial system could come falling down. It would be the end of the world as we have known it.

Does this sound familiar too? It should. It’s the same scare tactic used after Lehman was allowed to go under. AIG had to be saved. And Fannie and Freddie. And GM.

Now, that lame argument is probably going to lead to the bailout of Greece…and by extension, all the other insolvent nations along the periphery of Europe. The debts will be collectivized…just like those of Fannie and Freddie. Instead of being allowed to fail on their own merits, in other words, European nations are locking arms…they are all going to fail together!

Germany’s politicians are already talking about a program of support in a “broad sense” for Greece and other problem economies. Soon, in Europe, the English word ‘bailout’ will be as common as “hamburger” or “coke.”

Blowing Up a City in the Name of Economics

Yes, dear reader, your editor is snowed in. Not for the first time this winter.

And we’re not the only ones. The US government is shut down too. No matter. They weren’t doing anything but making things worse.

But wait…what’s this?

The Washington Post: “Blizzard or not, top Treasury staff is snowed in – with work.”

Uh oh. The folks who run the economy for us are still on the job.

“Geithner, aides skip day off to tackle economic clouds.”

We have to confess; we’ve never seen a US Treasury official tackle a cloud. We can’t quite imagine it. But it’s in the paper, so it must be true.

Of course, there are plenty of economic clouds around. Heck there are plenty of real clouds, too, dumping snow on the Washington area. Politicians and bureaucrats can’t really do anything about either type of cloud. But it must be a comfort to the woodenheads to think they are on the job. We’d rather they took the day off – and tomorrow too. And the next day!

What a godsend this snow is! Think of all the people it puts to work. Kids shovel out driveways and earn a little spending money. Snow-blower sales must be going through the roof. Four-wheel-drive vehicles are sliding out of lots and showrooms…work crews keep busy night and day – with huge overtime earnings, no doubt.

And think of all the missed work…and school…that will have to be made up.

You’re probably thinking…now, wait a minute. There’s something wrong with this picture. How could something as destructive and expensive as a blizzard be good for the economy?

Well, you’re just not thinking like an economist. You have to learn to stand on your head. Then, things are turned upside down.

Of course, a storm is not really good at all. But simpleton economists believe that anything that puts people to work is a good thing for the economy – even a world war.

What really happens in a storm…a blizzard…a flood…or a war is that real wealth is lost. Things break down or are destroyed or used up. And then a lot of resources must be put to work to make repairs. Putting these resources to work in a concerted way makes it look like progress…but you’re really only getting back to where you were in the first place.

Besides, the resources must be taken away from other things. The demand for snow-blowers displaces the demand for motorcycles or jet-skis. Workers who move snow might otherwise be making pizzas or delivering newspapers. And the fuel that goes into the salt trucks and loaders…that too, would have been used for something else – something people wanted to do, not something they had to do.

The early French economist, Frederic Bastiat, figured this out a long time ago. He called it the ‘broken window fallacy.’ Even then, some lazy economists thought that breaking a window actually boosted economic activity. Of course, it was nonsense…

If you could really improve an economy by breaking windows…or having a tornado pass through down…why not just blow up a whole city?

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.