The Devil is in the details.

The artificial euphoria of the latest EU Summit has now dissipated and we are back to doom and gloom. Ahgela Merkel has been castigated by German Media about her "capitulation" to the idea of bailing out Spanish banks. That, of course, made her rise in the polls.

Is either move justified? NO. There are two insoluble problems: 1. There have been constitutional challenges to any ECB action in Holland, Germany, Finland and another country; the ESM will not be operational (i.e. funded) untill 2013 or maybe 2014. Just the rules on how to bail out Spanish banks won't be finalized untill later this week. So, how is the bailout going to happen? Finland has blocked the purchasing of Spanish bonds by the ECB and threatens to leave the EU unless Spain comes up with suitable collateral. Ten year bond yields, meanwhile, jumped over 6% in Italy and 7% in Spain. Neither country can afford those rates.

We can see a worsening of economic conditions in Europe and in the US. Nearly 50% of the earnings of the S&P 500 companies come from Europe, so the EU troubles effect US companies.

The political vacillations have so far stymied everything. The ECB dropped their interest rate to 0.75% with little effect. Another drop is forecast. That won't solve the problem of debt either. Unless all debts are monetized, budgets balanced and services privatized the EU can not survive.

The response of the investment community to events is perplexing. There is a strong movement into the US Dollar and gold dropped over $30/oz Friday. The Dollar Index has now reached 83+ and the Euro/USD ration sank to 1.22. Why do I say that investors act irrationally? Because Spain may be racking up a 6% deficit, it is in trouble. But the US is running a deficit of 40%. Go figure.