Watching Spanish Bonds but Not Worrying

Weekend news stories that a corruption scandal could take down Mariano Rajoy's government in Spain sent Spanish bonds south -- 10-year bonds lost 1.75 points on Monday. I will leave discussion of this specific story to other outlets, since I am no expert on Spanish politics. However, the reaction in U.S. stocks and bonds raises an important question: Can the euro-zone sovereign bond crisis re-emerge as a driving force behind U.S. markets? In today's piece, I'll argue "no," with one caveat.

I begin by stating the obvious: Spain, Italy and others have dug themselves into a deep hole with debt-funded public sectors that were masking underlying weakness in their economies for many years. Now they are being forced to shrink the public sector, and because the laid-off government workers spent so much time in inefficient positions, they are finding job searches difficult in the private sector. This is causing a negative multiplier effect on overall growth in these countries....661 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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