Now, even France may be sucked into the "maelstrom." Reuters:

Spain and France faced sharply higher borrowing costs on Thursday, struggling with bond auctions that highlighted the threat of larger euro zone economies succumbing to the debt crisis that began in Greece and is now threatening Italy.

Thousands of Greeks took to the streets of Athens in a major protest rally that will be the first public test for a new national unity government that must impose painful spending cuts and tax rises if the country is to escape bankruptcy.

Italy's new Prime Minister Mario Monti unveiled sweeping reforms to dig the country out of crisis and said Italians were confronting a major emergency. Opinion polls show Monti enjoys 75 percent support but there were street clashes in the business capital of Milan and in Turin.

The Spanish government was forced to pay the highest borrowing costs since 1997 at a sale of 10-year bonds, with yields a steep 1.5 points above the average paid at similar tenders this year, drawing descriptions from the market ranging from "pretty awful" to "dreadful."

The euro fell in response.

Paris fared a little better, but again had to pay markedly more to shift nearly 7 billion euros of government paper. Fears that the euro zone's second largest economy is getting sucked into the maelstrom have taken the two-year debt crisis to a new level this week.

The major problem is that there is no clear path back to solvency for Greece, Portugal, and some of the peripheal states like Slovenia and Hungary. Allowing the European Central Bank to buy their bonds - something France desperately wants and Germany is adamantly resisiting - only kicks the can down the road. As hedge fund legend Mark Mobius warns:

"There is definitely going to be another financial crisis around the corner," says hedge fund legend Mark Mobius, "because we haven't solved any of the things that caused the previous crisis."

We're raising our alert status for the next financial crisis. We already raised it last week after spreads on U.S. credit default swaps started blowing out. We raised it again after seeing the remarks of Mr. Mobius, chief of the $50 billion emerging markets desk at Templeton Asset Management.

Speaking in Tokyo, he pointed to derivatives, the financial hairball of futures, options, and swaps in which nearly all the world's major banks are tangled up.

Estimates on the amount of derivatives out there worldwide vary. An oft-heard estimate is $600 trillion. That squares with Mobius' guess of 10 times the world's annual GDP. "Are the derivatives regulated?" asks Mobius. "No. Are you still getting growth in derivatives? Yes."

Then there's this, concerning the Fed:

"Through quantitative easing efforts alone," says Euro Pacific Capital's Michael Pento, "Ben Bernanke has added $1.8 trillion of longer-term GSE debt and mortgage-backed securities (MBS)."

Think about that for a moment. The Fed's entire balance sheet totaled around $800 billion before the 2008 crash, nearly all of it Treasuries. Now the Fed holds more than double that amount in mortgage derivatives alone, junk that the banks needed to clear off their own balance sheets.

"As the size of the Fed's balance sheet ballooned," continues Mr. Pento, "the dollar amount of capital held at the Fed has remained fairly constant. Today, the Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet.

"Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30-to-1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51-to-1! If the value of their portfolio were to fall by just 2%, the Fed itself would be wiped out."

I have been writing about this crisis for months and sense a great collapse coming. I am not, by nature, an alarmist. And I fully recognize that some of what we read and digest on a daily basis comes from an incompetent business press that sees the dark clouds in every silver lining and never misses an opportunity to try and scare the heck out of us.

But this is real, immediate, and extremely troubling. The real cure for all of this is rapid, sustained economic growth. But as we all know, that is not in the offing - not anything close to it. Hence, the market in its wisdom (and panic) is making a statement that it doesn't believe that some governments will pay investors back the money they owe on bonds bought to finance their deficit spending. It is a lack of faith in the EU and individual governments. And in our interdependent, interconnected world, all it takes for catastrophe to hit is if one, or two, or three nations can't sell their bonds at auction to meet their obligations and end up defaulting. When the costs of borrowing realistically exceed a government's ability to pay what they owe, financing debt becomes impossible and the whole rickety structure comes tumbling down.

Through our own stupidity in the US, we have allowed the same big banks that helped cause the meltdown in 2008 to build up more of the same credit default swaps and other derivatives that crashed the financial system. This time, the Fed is on the hook too, as mentioned above. There will be no bailout this time and because of that, the world economy is likely to slip into a genuine, 1930's style depression - something that was supposed to be impossible.

Maybe things aren't as bad as they seem. I'm no expert and can only give you the benefit of what I read. I look for opposing views, and can't find much at all. The best that can be said is that there seems to be a confidence held by some analysts that in the end, Europe will find a way through and do what is necessary to prevent the worst. You immediately recognize this as wishful thinking because the basis for this analysis is in predicting the behavior of EU leaders who so far, have shown little inclination to head off disaster. And since the crisis is likely to occur with lightening speed and be over before most Americans sit down to breakfast, one wonders where that confidence in Merkel, Sarkozy, and the ECB directors is coming from.