Larry Kudlow

The ink was barely dry on the $150 billion EU/IMF bailout of Greece when world stock markets tanked on two major fears. First, financial analysts are concerned that the bailout money won't be enough to cover Greece's borrowing needs from its out-of-control budget deficit. Second, there are fears that the EU/IMF deal will not be approved by the German parliament in a vote scheduled for Friday.

Additionally, there are new worries that the Greek debt contagion will spread to Spain and elsewhere in Europe. The looming specter of debt default and deflation is heavy in the air for investors worldwide.

Michelle Malkin

Making market matters even riskier, German chancellor Angela Merkel faces key regional elections this Sunday in populous North Rhine-Westphalia, including the conservative areas of Cologne, Bonn, and Stuttgart. These cities hate government debt and overspending as much as the rest of Germany, if not more so.

The great postwar German leader Konrad Adenauer came from Cologne. He was a conservative Catholic who despised Nazism and Soviet communism. He also was an inflation fighter. To stop hyperinflation in the postwar period, Adenauer sponsored the new German mark and linked it to the dollar, which in those days was as good as gold.

Today, all of Germany still hates inflation. And the Germans are afraid that the currency printing presses used to buy bad bailout bonds will return the country to a haunted past. So it's tricky business for Merkel to sell the Greek bailout on the eve of local elections that could disrupt her already thin governing coalition.

Merkel is playing a double game here. She's telling the Financial Times and the Wall Street Journal that the bailout must pass in order to save the euro currency. At the same time, she's telling folks at home that Greece's extravagant social-welfare entitlement system of bankrupt promises is a disgrace that Germans would never tolerate.

Apparently, credit markets won't stand for it either. Both around the world and here in the U.S., credit markets are boycotting massive government debt creation. The result is that gold is fast becoming a currency substitute, with strong markets for the yellow metal saying a pox on all your houses.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.