A new eurozone crisis is looming as Spain signalled on Monday it was ready to bail out ailing banks after markets shrugged off the election results in France and Greece.

Prime minister Marian Rajoy indicated the Government was ready to intervene to save banks wrestling with the collapse of the housing market.

Bankia, Spain’s fourth biggest bank, is the first in line for state aid. Rodrigo Rato, chairman and former IMF managing director, swiftly resigned after it was disclosed the finance ministry was preparing to refinance the bank and introduce legislation to protect the balance sheets of others.

Spain, which also signalled it could dock its only aircraft carrier to save €30m a year, is already struggling to cope with an austerity drive that has pushed the jobless total up to nearly 25pc of the workforce.

Mr Rajoy insisted that any bank bail-out would not compromise the tough targets set by Brussels to reduce the budget deficit.

Peter Kenny, managing director at Knight Capital, said Spain’s action was positive because “it’s them taking ownership of their own issues”.

Fears of a fall-out in financial markets after the election results in France and Greece were short-lived. Shares and the euro recovered after initial falls as investors reasoned any policy changes in the eurozone recovery programme were some way off.

But the turmoil in Greece produced by a backlash against a tough austerity programme and the failure of early efforts to form a coalition government heightened speculation the country would be forced out of the eurozone.

Citi’s European economics team said there was a “rising risk of a Greek exit from the euro within the next 12 to 18 months.”

Angela Merkel, the German chancellor, urged the Greek political parties to stick to the bail-out programme but her pleas fell on deaf ears.

Markets remain more interested in whether France’s new president, François Hollande, will be able to persuade her to support policy changes that would meet demands for more emphasis on growth and economic recovery rather than austerity.

Mrs Merkel said she would welcome President Hollande with “open arms” and was willing to work with him but there was little sign she was ready to meet demands for a redrafting of the eurozone fiscal pact.

The two leaders are due to meet after Mr Hollande is sworn in next week. President Obama has offered to meet him before the G8 economic summit on May 18, when David Cameron is due to meet him for the first time.

Downing Street rejected suggestions that Britain could suffer because of the prime minister’s support for former President Sarkozy.

Christine Lagarde, IMF chief executive, described the eurozone growth versus austerity battle a “false debate”. She used a speech in Zurich to call for more flexibility for eurozone countries struggling to meet fiscal targets.

About one year ago, I made the forecast that the Euro would not survive until the end of 2012 in its current form.  I’m sticking with that statement.

While Spain is experiencing the pain of a deflationary depression with unemployment at 25% largely due to austerity programs designed to keep budget deficits within the guidelines established by Eurozone leaders, the French and Greek electorates revolted against such measures, electing leaders who ran on an “austerity is bad” platform.

There is no fiscal stability in Europe and now, added to that already difficult situation, we have political instability.  It appears that the austerity programs put in place are now going to be abandoned by some European countries which means, in my view, the Euro is all but doomed.  The only question in my mind is which country leaves first – and when.

Republican foreign policy elder statesman Sen. Richard Lugar, 80, first elected to the Senate in 1976, was defeated in the Indiana primary Tuesday by state Treasurer Richard Mourdock, who was backed by conservatives ranging from the National Rifle Association to local Tea Party activists to the Washington-based fiscal conservative group the Club for Growth.

Mourdock scored a landslide victory, winning more than 60 percent of the vote with almost all precincts reporting.

Looking toward the November election, National Republican Senatorial Committee chairman Sen. John Cornyn of Texas said two weeks ago that “it will probably make it more of a contest if Sen. Lugar is not the nominee, but I’m confident we’ll hold the seat.”

In a statement Tuesday night once the outcome was clear, Cornyn said Mourdock “has the NRSC’s full support and we are committed to helping elect him as Indiana’s next U.S. Senator in November.”

Conceding defeat, Lugar told his supporters, “I hope that Richard Mourdock prevails in November so he can contribute to that Republican majority in the Senate.”

But Lugar also said that unless Mourdock “modifies his approach, he will achieve little as a legislator.”

Within minutes of Mourdock’s victory, leading Senate conservative Sen. Jim DeMint of South Carolina — who’d stayed neutral in the primary — sent a message to supporters of his Senate Conservatives Fund, urging them to donate money to Mourdock.

“A year ago political pundits said Richard Mourdock couldn’t win this race. They said he couldn’t build the support needed to overcome the establishment machine. They were wrong,” DeMint said.

And now a bit on the West Virginia story from The Christian Science Monitor (emphasis added):

In an embarrassment to President Obama, Federal Inmate No. 11593-051 – otherwise known as Keith Judd – won 10 counties and 41 percent of the vote in West Virginia’s Democratic presidential primary Tuesday.

Mr. Judd is incarcerated at the Federal Correctional Institution in Texarkana, Texas, where he is serving a 210-month sentence for extortion, according to The Charleston Gazette. Judd had paid the $2,500 filing fee and submitted a notarized “certificate of announcement” to appear on the ballot.

He is even qualified to have a delegate at the Democratic National Convention, because he won at least 15 percent of vote. However, no one has stepped forward to fill that role.

But those are just details. The Republicans are having a field day with this slap at the president. Mr. Obama is deeply unpopular in West Virginia and was already certain to lose the small mountainous state in November. But the fact that enough people bothered to turn out in an uncontested primary to register a protest against the incumbent is telling.

“Just how unpopular does someone have to be for this to happen?” says Joe Pounder, research director and deputy communications director at the Republican National Committee, in a statement.

He notes that Democratic Sen. Joe Manchin of West

Virginia wouldn’t say whom he voted for in the primary. “Apparently, it’s a smarter political calculation to let people believe you may have voted for the guy in federal prison over the sitting president of your own party. Just saying,” Mr. Pounder writes.

West Virginia’s Democratic governor, Earl Ray Tomblin, has also not revealed his vote. Energy is a big issue in his state – America’s second-biggest producer of coal – and the Environmental Protection Agency’s handling of mining-related permits has angered the local industry, writes the Associated Press.

In addition to being a convicted felon, Judd is also a serial presidential candidate. In the 2008 Idaho Democratic primary, he finished third behind Obama and Hillary Rodham Clinton with 1.7 percent of the vote, per The Charleston Gazette.

According to the website for the secretary of State of West Virginia, the state’s primaries are closed. Major party members are required to “vote the ballot” of their party. But “all the major parties allow members of minor parties and unaffiliated voters to vote their ballots upon request,” the site says.

Still, the 41 percent who voted for Judd had to have included a lot of registered Democrats. One voter, an electrician named Ronnie Brown from Cross Lanes, W.Va., told the AP that he’s a conservative Democrat who voted “against Obama.”

“I don’t like him,” Mr. Brown said. “He didn’t carry the state before, and I’m not going to let him carry it again.”

And yes, Brown did vote for Judd – or “that guy out of Texas,” as he put it.

Read what you want into these stories.  But in this election year, I’d hate to be an incumbent in either party.

Pacific Investment Management Co.’s Bill Gross and Jan Hatzius at Goldman Sachs Group Inc. (GS) say investors should prepare for additional bond purchases by the Federal Reserve to combat a slowing U.S. economy.

A decision to buy more debt is “getting closer,” Gross, who runs Pimco’s Total Return Fund, the world’s largest mutual fund, wrote on Twitter yesterday. Hatzius, the chief economist at New York-based Goldman Sachs, predicted in a report the same day that the Fed will announce additional monetary easing when it meets in June.

Bill Gross, manager of the world’s biggest mutual fund at Pacific Investment Management Co., talks about the outlook for another round of quantitative easing by the Federal Reserve and 10-year Treasury note yields. He speaks with Trish Regan on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

Prospects for a third round of central bank asset purchases, known as quantitative easing, or QE, increased after a Labor Department report May 4 showed U.S. employers added 115,000 jobs in April, the smallest gain in six months. Europe’s debt crisis is threatening to slow global growth. Ten-year Treasury yields fell to 1.81 percent yesterday, approaching the record low of 1.67 percent set Sept. 23.

“In such an uncertain environment, taking out a bit more insurance still looks like the sensible choice for U.S. monetary policy makers,” Hatzius wrote. “We have stuck with our forecast of some additional monetary easing” at the Fed’s policy meeting June 19 to June 20.

The central bank bought $2.3 trillion of bonds in two rounds of quantitative easing, known as QE1 and QE2, from December 2008 to June 2011. The Fed is also replacing $400 billion of short-term Treasuries in its holdings with longer-term debt to keep borrowing costs down, under a program scheduled to end next month.

Policy makers have pledged to keep the target for overnight bank lending as low as zero until at least late 2014.

Two Fed officials have questioned whether additional easing will work.

Fed Bank of Dallas President Richard Fisher said yesterday that a drop in equity prices is no reason for the central bank to intervene.

“Markets are manic depressive, they come and go,” Fisher told reporters when asked if slumping markets and slower-than-expected employment gains had changed his outlook for Fed policy. “The key to success here is not further monetary accommodation.”

The Standard & Poor’s 500 Index fell to its lowest level in two months yesterday.

Fed Bank of Richmond President Jeffrey Lacker said May 7 that much of U.S. unemployment results from structural weaknesses such as inadequate training that can’t be fixed by Fed stimulus. The U.S. jobless rate of 8.1 percent is the lowest in three years.

“Some commentators are urging the Fed to take additional action as long as the unemployment rate remains elevated,” Lacker said. “But if elevated unemployment reflects largely fundamental factors rather than insufficient spending, such stimulus might have little impact on unemployment and instead just raise the risk of pushing inflation up.”

Lacker votes on monetary policy this year while Fisher does not.

The U.S. economy is “dreary,” Hatzius wrote.

Gross domestic product slowed to an annual rate of 2.2 percent in the first quarter from 3 percent in the prior three months, the Commerce Department reported April 27.

First observation: I have been of the opinion that another round of QE was inevitable given that the policymakers continue to try to solve a debt problem by adding more debt to the system.  During the autumn economic season that proceeded this current winter season, much of the economic growth that we experienced was as a result of debt accumulation.  Debt accumulation is made easier when interest rates are low which seems to fuel rapid and healthy economic growth.  The reality, I believe, is that this approach to monetary policy will only be successful until the system reaches its capacity for debt.  I believe the system has reached its capacity for debt and that this approach by the Federal Reserve can only make the eventual problem worse.

Second observation:  if lower interest rates and money printing have not initiated economic growth to this point due to excessive debt levels, the likely short term outcome of more money printing is inflation accompanying economic stagnation or economic decline.  That outcome simply punishes savers and investors, the very folks for whom we should be looking out.

Europe is a mess — politically, economically, fiscally, economist David Rosenberg said Monday.

“In less than two years, we are now up to a total of seven European leaders or ruling parties that have been forced out of office, courtesy of the spreading government debt crisis — tack on France now to Ireland, Portugal, Greece, Italy, Spain and the Netherlands. Even Germany’s coalition is looking shaky,” the Gluskin Sheff economist wrote in his note Monday.

“This is quite a potent brew — financial insolvency, economic fragility and political instability.”

Investors were shunning risk Monday after an anti-austerity backlash by voters in Greece and France over the weekend shook the eurozone.

Greece plunged into turmoil after a general election boosted far-left and far-right splinter groups, stripping mainstream parties that back a painful EU/IMF bailout of their parliamentary majority. The shock Greek result overshadowed France’s presidential election, in which Socialist Francois Hollande, who wants to change Europe’s German-driven focus on austerity and focus on restoring growth, ousted conservative incumbent Nicolas Sarkozy.

The euro and stocks slid Monday on deepening doubts about the ability of Athens to survive in the single currency area.

Greece’s exit is not only possible (despite there being no provision yet for such exits) it is also probable, said Rosenberg. And that could bring the whole union toppling down.

“In the final analysis, it won’t be the Germans that decide, but the Greeks. The political movement for secession, my friends, is going strong — and could happen this year. And when it does, don’t think for a second as the Drachma printing machines are dusted off that we won’t see a domino effect take hold in the rest of the periphery. Even if it doesn’t, I would be surprised if a Greek exit from monetary union would not trigger a run on Portuguese and Spanish (even Italian and French) banks.”

More uncertainty, volatility and risk aversion likely lies ahead, says Rosenberg, and with it further deterioration of governments’ financial health.

Studying history, one learns that political change, even dramatic political change often occurs after economic turmoil.  As this economic winter season continues to move ahead, I expect that there will be even more dramatic economic turmoil followed by even more political change.

The consequences of excessive debt are unavoidable and are extremely unpleasant.  Unfortunately, as we are now seeing first hand in Greece, where far left and far right groups are gaining power, these excessive debt consequences can create conditions under which rational people begin to behave irrationally.

Bake sales, the calorie-laden standby cash-strapped classrooms, PTAs and booster clubs rely on, will be outlawed from public schools as of Aug. 1 as part of new no-nonsense nutrition standards, forcing fundraisers back to the blackboard to cook up alternative ways to raise money for kids.

At a minimum, the nosh clampdown targets so-called “competitive” foods — those sold or served during the school day in hallways, cafeterias, stores and vending machines outside the regular lunch program, including bake sales, holiday parties and treats dished out to reward academic achievement. But state officials are pushing schools to expand the ban 24/7 to include evening, weekend and community events such as banquets, door-to-door candy sales and football games.

The Departments of Public Health and Education contend clearing tables of even whole milk and white bread is necessary to combat an obesity epidemic affecting a third of the state’s 1.5 million students. But parents argue crudites won’t cut it when the bills come due on athletic equipment and band trips.

“If you want to make a quick $250, you hold a bake sale,” said Sandy Malec, vice president of the Horace Mann Elementary School PTO in Newtonville.

Maura Dawley of Scituate said the candy bars her 15-year-old son brought to school to help pay for a youth group trip to Guatemala “sold like wildfire.” She worries the ban “would seriously affect the bottom line of the PTOs.

“The goal is to raise money,” Dawley said. “You’re going to be able to sell pizza. You’re not going to get that selling apples and bananas. It’s silly.”

Food fundraisers have helped send the renowned Danvers High School Falcon Band to the Rose Bowl Parade in California and the 70th anniversary of the attack on Pearl Harbor in Honolulu. Danvers Parents for Music Education sell fudge because “it still works,” said the group’s president, Matthew Desmond. “Even my wife will buy it.”

Middleboro School Committeeman Brian Giovanoni, whose board will discuss the mandatory meal makeover Thursday night, said, “My concern is we’re regulating what people can eat, and I have a problem with that. I respect the state for what they’re trying to do, but I think they’ve gone off the deep end. I don’t want someone telling me how to do my job as a parent. … Is the commonwealth of Massachusetts saying our parents are bad parents?”

No, insists Dr. Lauren Smith, DPH’s medical director.

“We’re not trying to get into anyone’s lunch box,” Smith told the Herald. “We know that schools need those clubs and resources. We want them to be sure and have them, but to do them a different way. We have some incredibly innovative, talented folks in schools who are already doing some impressive things, who serve as incontrovertible evidence that, yes, you can do this, and be successful at it.”

State Sen. Susan Fargo (D-Lincoln), chairwoman of the Joint Committee on Public Health, said the problem of overweight children has reached “crisis” proportions.

“If we didn’t have so many kids that were obese, we could have let things go,” Fargo said.

“But,” she added, “this is a major public health problem and these kids deserve a chance at a good, long healthy life.”

Dr. Smith states that the State is not trying to get into anyone’s lunch box; however, that statement is hardly truthful.  That is exactly what the State is doing.  And, it’s not just happening in Massachusetts.  Here’s an excerpt from a news story published about an incident that occurred in North Carolina.  The story was published in “The Daily Caller”[2] (emphasis added):

A North Carolina elementary school forced a preschool student to eat cafeteria chicken nuggets for lunch on Jan. 30 after officials reportedly determined that her homemade meal wasn’t up to the U.S. Department of Agriculture’s standards for healthfulness, according to a report from the Carolina Journal.

The newspaper reported that the four-year-old girl brought a turkey and cheese sandwich, a banana, potato chips and apple juice in her packed lunch from home. That meal didn’t meet with approval from the government agent who was on site inspecting kids’ lunches that day.

The Department of Health and Human Services’ Division of Child Development and Early Education requires that all lunches served in pre-kindergarten programs must meet USDA guidelines. Meals, the guidelines say, must include one serving each of meat, milk and grain and two servings of fruit or vegetables. Those guidelines apply to home-packed lunches as well as cafeteria meals.

The Carolina Journal reported that the girl and her mother wish to remain anonymous to avoid public scrutiny, but she did write to her state representative to complain about it.

“I don’t feel that I should pay for a cafeteria lunch when I provide lunch for her from home,” the mother wrote in a complaint to her state representative, Republican G.L. Pridgen of Robeson County.

“What got me so mad is, number one, don’t tell my kid I’m not packing her lunch box properly,” the girl’s mother told a reporter. “I pack her lunchbox according to what she eats. It always consists of a fruit. It never consists of a vegetable. She eats vegetables at home because I have to watch her because she doesn’t really care for vegetables.”

A government agent who is onsite inspecting preschooler’s lunches?

Outlawing bake sales?

Does any of this strike anyone else as way over the top?

But mark my words this is just beginning unless we fight back.  Wait until the government provides all health care to all its citizens; at that point it is preordained that the government will exert an ever increasing amount of control over your personal life.  Not just what you eat, but perhaps even the activities in which you can engage.

Skydiving, football, consuming alcohol, eating a nice juicy steak, car racing and riding motorcycles are all potentially hazardous activities.  Does this mean that at some future point there will be regulations that govern or prohibit these activities and others?

If you think I’m being extreme, ask yourself this, 10 years ago if I’d have told you that bake sales would be made illegal or government agents would be inspecting the home packed lunches of preschoolers, would you have said I was extreme?

I don’t know about you, but to me, this whole loss of freedom is a very troubling trend.  Remember, if you give government the power to do what is right, you’re giving the government power to do what is wrong.

Get involved, write your representatives and remember this when you vote later this year.

[2] Matthew Boyle.  “Nanny state report: NC school officials reject preschooler’s homemade lunch.” The Daily Caller. February 14, 2012.  http://dailycaller.com/2012/02/14/nanny-state-report-nc-school-officials-confiscate-preschoolers-homemade-lunch/