I fully intended to ignore Spain this week. Really, truly I did. I had my letter all planned, but then a few notes drew my attention, and the more I reflected on them, the more I realized that the inflection point that I thought the ECB had pushed down the road for at least a year with their recent €1 trillion LTRO is now rushing toward us much faster than ECB President Draghi had in mind when he launched his massive funding operation.So, we simply must pay attention to what Spain has done this week – which, to my surprise, seems to have escaped the attention of the major media. What we will find may be considered a tipping point when the crisis is analyzed by some future historian. And then we'll get back to some additional details on the US employment situation, starting with a few rather shocking data points. What we'll see is that for most people in the US the employment level has not risen, even as overall employment is up by 2 million jobs since the end of the recession in 2009. And there are a few other interesting items. Are we really going to see 2 billion jobs disappear in the next 30 years?

But first, a personal note. My friend and fellow writer/economic blogger Mike "Mish" Shedlock's wife has ALS, better known as Lou Gehrig's disease. I have talked at length with him the past year as the disease progressed. It is a truly evil affliction. Mish has stayed the course, working with his wife, and now the options will soon be down to her communicating with a device that follows her eye movements to choose words on a computer screen. I cannot even imagine the pain of living with a loved one in the condition.

Mish is not asking for anything for his family, but he is sponsoring a raffle for ALS research. Please consider buying one or more tickets, or making a small donation to the Les Turner ALS Foundation. The money will go to research to find a cure, so that someday no one has to go through such pain. Thanks.

Last Monday I was in Paris and was asked to do a spot on CNBC London. I arrived at the studios an hour early due to a misunderstanding of the time zones, so while trying to catch up on the news I listened to CNBC. I had just written about Spain in last week's letter and guessed that was what they wanted to talk to me about, but for the full hour before I got on it seemed like every guest wanted to talk about Spain. When I had my turn and indeed got the Spain question, I smiled and noted that we were now in a period when it would be "All Spain All the Time," for at least the next year. I should have noted that there would be brief interruptions where we glanced at Portugal and perhaps Ireland, but the real focus would be on Spain.

I fully intended to write about something other than Europe this week, but the events of the last 24 hours compel me to once again look "across the pond" at the problems that not only plague Europe but will be a drag on world growth as well, as Europe goes through its continued painful adjustment as a consequence of trying to adopt a single currency. Since Spain is going to be on the front page for some time, it will be useful to look at some of the problems it is facing, to put it all into context. And what I heard while in Europe in private meetings is troubling.

… (December 11, 2009) – Greece's prime minister, George Papandreou, told reporters in Brussels on Friday that European Central Bank President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker see "no possibility" of a Greek default, Bloomberg News reported. Papandreou also said that there was no possibility of Greece leaving the euro area, according to the report.

"Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces."

– Sigmund Freud

Let me introduce Mauldin's Rule of Thumb Concerning Unintended Consequences:

For every government law hurriedly passed in response to a current or recent crisis, there will be two or more unintended consequences, which will have equal or greater negative effects then the problem it was designed to fix. A corollary is that unelected institutions are at least as bad and possibly worse than elected governments. A further corollary is that laws passed to appease a particular group, whether voters or a particular industry, will have at least three unintended consequences, most of which will eventually have the opposite effect than the intended outcomes and transfer costs to innocent bystanders.

This week we wonder about the consequences of the European Central Bank (ECB) issuing over €1 trillion in short-term loans to try and postpone a banking credit crisis and lower sovereign debt costs for certain peripheral countries in Europe. What if, instead of holding the European Monetary Union (EMU or Eurozone) together, that actually makes a breakup more likely? That would certainly fall under the rubric of unintended consequences, and be worth our time to contemplate in this week's letter.

Further, what if the group that oversees credit default swaps declares an actual sovereign debt default not to be a technical default in order to avoid a credit crisis because CDSs would have to be paid? Could that actually undermine the ability of smaller countries to borrow money at lower cost, if they could even borrow it at all? Thus making the eventual outcome even worse? We will explore these perplexing questions and more as we once again turn our attention to Europe.

But first, and quickly, we are now ready to take reservations for the 9^th Annual Strategic Investment Conference, May 2-4, which this year will be in Carlsbad, California for the first time, at a venue that will allow us to take a few more attendees but still keep that intimate feeling. I host the conference, along with my partner Jon Sundt and his team at Altegris Investments.

Each year I wonder how we could make the conference any better, but I think we have done it. I must say that I do not think any conference anywhere has the quality speaking line-up that we do. It is the finest collection of top-notch raconteurs posing as economists assembled anywhere. Each speaker is a headliner in his own right, wherever they go. We have nothing but the best each year.

Look at this line-up: Dr. Woody Brock, Mohamed El-Erian, Marc Faber, Niall Ferguson, Jeff Gundlach, David Harding, Dr. Lacy Hunt, Paul McCulley, David McWilliams (from Ireland), David Rosenberg, Jon Sundt, and your humble analyst. Plus the surprise guests. Seriously, where else can you find all that talent under one roof? I design the conference each year to be the one that I would want to attend. And Sundt and team run as smooth and enjoyable a conference as you will find anywhere.

Signing up will also give you access to exclusive papers and webinars. For example, next week I'll be interviewing Winton Capital Management. For regulatory reasons, you will need to speak with Altegris to verify your accredited-investor status, prior to being allowed to attend. You can learn more and register by going to http://meetings.StrategicInvestmentConference.

I should note that the best feature of the conference is the attendees themselves. You will make new friends and meet old ones. And the speakers are very accessible. The price goes up considerably on March 15, so register early. We always sell out, and I get calls asking to get in at the last minute, and have no way to help. Don't procrastinate. Register now. We are way ahead of last year on the pace of registrations. Again, it will sell out. Do it now.

"If we want everything to stay as it is, everything will have to change."

– from The Leopard by Giuseppe Tomasi di Lampedusa

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought, and that's sort of exactly the Mexican story. It took forever and then it took a night."

– Rudiger Dornbusch

Europe's leaders are committed to keeping both the euro and the eurozone as it is. But for it to do so, everything must change, as the wonderful quote from the 1958 Italian novel suggests. This is no easy task, as no one wants a change that will impact them negatively; and there is no change that will allow things to stay the same that does not impact all severely, as we will see. In the third part of a continuing series, we look at the actual options that are available on the menu of choices, or as one group called it, the menu of pain. I offer some guideposts that we should watch for along the way, and end by offering a suggestion as to what Europe should do. As has been the case in this series, I do my best to offend everyone at some point. If by some small, unintended oversight I do not, then wait another week, I will get to you. What else are friends for?

But before we take on Europe, let me quickly tell you to save the date for my annual Strategic Investment Conference, co-sponsored with my partners, Altegris Investments. And what a lineup we have this year. Already scheduled are my friends Dr. Woody Brock, Mohamed El-Erian, Marc Faber, Niall Ferguson, bond-fund star Jeff Gundlach, Dr. Lacy Hunt, David Rosenberg, as well as your humble analyst. And there are a few more blockbuster names we are close to finalizing. Most people who attend think this is simply the best investment conference of the year, and I think this one looks better than ever. It will be May 2-4 in the San Diego area. I will soon give you details about where you can go to register, but for now put it in your calendar. What better way to think about how to invest in these times than to hear some of the best minds in the world, all in one place?

As this letter will suggest, I don't think this is the year you want your portfolio in typical long-only funds. There is a lot of tail risk this year coming from Europe. For those who are accredited investors and interested in alternative investments like hedge funds and commodity funds, which can help you navigate through these volatile times, let me suggest you go to The Mauldin Circle and register, and my friends at Altegris Investments will give you a call. I am finishing up a new Accredited Investor Letter, and they will send it to you for free as our way of saying thanks for talking with us. Now, let's jump right in.

One of the interesting things about being in Hong Kong is that I get to see the weekend edition of the Financial Times 12 hours early. And the headlines were not all that pleasant. As I promised last week, we will cast our eyes to Europe and ponder what is in store for Europe for the year and the next five years. And what do we read on page 2? The "ECB raps revisions to draft a fiscal pact." Seems they feel there are too many loopholes, which will make the document meaningless … somewhat like the treaty they have now. And we further learn that "Greek default threat grows as talks falter." Seems there is a lack of agreement on how much of a haircut the investors ought to take, and the Greeks don't want to guarantee any future debt, just in case they need to default some more in the future. But they do want the €15 billion they need to keep the debt machine running for a few more months.

"Whoever cannot seek the unforeseen sees nothing for the known way is an impasse."
― Heraclitus, Fragments

Which path will we take? If we could only grow our way out of our sovereign debt problems. But growing debt creates even more problems if not dealt with, making it even more difficult to deal with; yet getting the debt and deficit under control brings its own form of pain. As I keep pointing out, there are no easy choices left. Some countries must choose between difficult and very bad, and others are faced with either disaster or calamity. Greece simply gets to choose what it wants to be the cause of a depression. Long and slow or fast and deep? Choose wisely.

It's that time of year when we start thinking about what the next may hold for us. I am reading and thinking a great deal about my annual forecast issue next week, taking some time off from my usual Friday missive; so this week we look at what I think is one of the best pieces of analysis I have read in the past few months. It is from a private letter for the Boston Consulting Group, and Dan Stelter graciously allowed me to let my friends read it.

Follow this thinking carefully and then think through their outline of what a country would have to do to leave the euro, which starts at the subhead entitled "What if… ?". Then ask yourself what do you need to do. The short answer from me is that you need to consider more what you already own rather than what you should buy.

At the end of the letter is a link to an in-depth review of what scenarios businesses should be considering, but it will also work for individual investors. Now, let me turn it over to Dan and David.

Turning and turning in the widening gyre
The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

- The Second Coming, by William Butler Yeats (1865-1939)

This coming week we shall likely see Congress pass an extension of the "temporary" payroll tax cut, first enacted as a stimulus to the economy in January of 2011. As I write, the extension is just for two months. We'll leave aside the politics and look at the economic implications of the extension, and then go on to examine the deficit in the US. That will give rise to some thoughts about Europe and what would have to happen for a country to leave the euro. We'll finally close with some thoughts and graphs about the more controversial part of the tax cut extension, the Keystone XL Pipeline. Just how radical is it to build such a pipeline in the US? And what are the implications for the deficit? I think looking at a few maps might surprise some readers. It should all make for a rather controversial letter, but then controversy is my middle name. (Note, this letter will print longer as there are lots of charts.)

But first, I want to thank one reader for helping to increase my reader base in a rather unusual way. I was sent this bit from a blog by Edward Ream today:

"I came across John Mauldin, http://www.johnmauldin.com, when someone left a printout of his blog in a railway carriage. His ‘Outside the Box' column is free to all.

"I enjoy his column, and I think some of you may enjoy it too. I especially admire his thirst for knowledge and his tolerance of diverse viewpoints. He actively seeks disconfirming evidence and the views of those who disagree with him. Imo, this stance is a model for what politics should be, and isn't :-) – Edward"

Thanks, Edward, and to whomever left the letter on the train. We take expansion of the number of our friends wherever we can find it. And let's see how he feels after this letter.

We have come to the end of yet another European Summit that was supposed to be the one to fix the problem. If you are confused as to what happened then you are not alone. Was it something we will look back on in ten years and say, "This was where it all started," or will it be viewed as just another meeting in what will prove to be a string of even more meetings? I will argue that both views are the correct answer, depending on your frame of reference.

But what did come out of the meeting was that some very clear lines were drawn. Will those lines look like the one that Colonel Travis drew with his sword at the Alamo, where those who crossed and joined him knew their fate? Or will it be more like the fabled French Maginot line, thought to be impregnable, which Germany simply went around? Stark comparisons, I know. But then, the choices and sides of the lines you choose to be on offer very stark consequences.

I should acknowledge that I spent a great deal of time the last two days reading and talking with friends from around the world, trying to make sense of the omelet that we were served in Europe. Exactly what is in it? This letter is somewhat speculative on my part, taken from my gathered impressions over the week and informed by my readings over the years. I will use some simple analogies to try and make things clear. And I know that using such simple devices has its limitations, but those are the tools that I have to work with. They will have to suffice. I hope they also inform.

But first, and speaking of conversations, as part of my discussions on Europe I have scheduled two Conversations next week, one with Lacy Hunt and the other with Barry Ritholtz and Jim Bianco. They will be recorded and transcribed as soon as we can, so that subscribers to Conversations with John Mauldin can listen in before the holiday season arrives. Plus those fabulous archives, with Mohamed El-Erian, David Rosenberg, George Friedman (hmm, I need to do another one with him soon – so much is happening!), Richard Yamarone, Gary Shilling, Nouriel Roubini, and many more. You can "eavesdrop" on my earnest chats with my friends about what's on our minds, just like being at the table. And for the holidays, if you use the code CONV when the signup process asks for one, you get $50 off the regular subscription price. You can subscribe (and learn more) at http://www.johnmauldin.com/conversations/landing/. Join us! And now, let's jump right in.

It is now common to use the term bazooka when referring the actions of governments and central banks as they try to avert a credit crisis. And this week we saw a coordinated effort by central banks to use their bazookas to head off another 2008-style credit disaster. The market reacted as if the crisis is now over and we can get on to the next bull run. Yet, we will see that it wasn't enough. Something more along the lines of a howitzer is needed (keeping with our WW2-era military arsenal theme). And of course I need to briefly comment on today's employment numbers. There is enough to keep us occupied for more than a few pages, so let's jump right in. (Note: this letter may print long, as there are a lot of charts.)