Dow down 151 points yesterday. Asian markets down again this morning…

“Panic in markets caused by debt crisis,” says the headline in the French newspaper, Le Figaro.

Which debt crisis, we wondered?

In Europe, no sooner was one can kicked down the road than another one showed up. Greece disappeared from the headlines. Italy took its place.

We haven’t studied the Italian problem in any detail. It may not be a problem at all. But the amounts are larger – too big to bailout, according to one report.

Europe seems to be taking a tried and true approach to its debt crises. It kicks the can down the road a few times. Then, when it has exhausted bad choices, it turns to a good one. Having run out of foolish and phony solutions, in other words, the authorities are taking up one that works. They’re telling Greece to drop dead. The latest news: Greece will be allowed to default.

Of course, you knew that was the thing to do from the get-go. Remember Gerald Ford’s famous reply to New York City in the ’70s? New York was on the verge of bankruptcy. So it appealed to Washington for a bailout. Ford, who had more sense than any major politician since, responded: Drop dead. And if he didn’t actually say that, he should have. For those were “les mots justes” – exactly the reply that the occasion called for.

Having no other recourse, NYC had to shape up. Which it did. It got rid of many of its unionized zombies…cut expenses…and the Big Apple was a better place for it. (It didn’t hurt that New York was also the center of America’s financial industry, which began a historic boom a few years later.)

Greece would be a better place too if its pols would stop spending more than the people can afford.

But now we turn to the other part of the world with a debt crisis – that part of the world which sits between the world’s two large oceans, and between the 49th parallel and the Rio Grande. Yes, dear reader, we are talking about the USA.

Yes, the USA still has plenty of bad choices to make before it is finally forced to make a good one. Sometimes a great empire goes broke. Sometimes it is defeated militarily. Usually, it suffers both calamities before coming to its senses.

So, dear reader, make sure you put yourself and your wealth out of harm’s way. And lay up a good supply of alcohol and anything else you might need to enjoy the show. It’s going to be exciting.

The problem for the USA, in a nutshell, is that there is no one to say ‘drop dead.’ New York had Washington. Greece has Germany. Philip II had Sir Francis Drake. Custer had Sitting Bull. But who does the USA have? Abroad, its armies meet no effective opposition. At home, its spendthrifts run wild.

Perhaps most important, it has a printing press with no lock on the door.

Eventually, bond investors will have their say. But that could be far in the future…long after the nation has done itself irreparable harm.

Yesterday, we reported that people are coming around to our point of view. They’re beginning to realize that these are not ordinary times. The recession was not ordinary…and we have no ordinary recovery. What’s more, the slump looks like it will last for years. Even the Secretary of the Treasury seems to see it that way.

Investors are still bullish. They’re heavily invested in stocks at very high prices. They see high earnings and no reason for the bull market to falter. What they don’t realize is that those high earnings are part of the problem. First, because earnings are ‘mean reverting.’ When they are low, they are likely to go higher; when they are high, they are likely to go lower. And second, because the earnings represent efficiencies which actually herald a weaker economy. A business increases its earnings by spending less on labor, for example. The result: working people find fewer jobs and earn less income.

Investors still don’t realize what is going on. They have largely recovered their stock market losses from the ’07-’09 crisis. But the economy has not recovered. Working households – especially those in the middle – still have huge losses on their houses. More than $7 trillion has been lost so far…and the losses continue to grow.

And it is harder than ever to find a good job. Two years after the recovery supposedly began, and real unemployment is going up.

Can QE3 be far away?

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