The idea that there were pain-free solutions to the mountain of debt the world has taken on was always a delusion. But it was one that the leaders of the US and Europe in particular have clung to ferociously. Until now. In just the past few days they've all, it seems, been forced to recognize the futility of their situation, and have simply given up. Consider:

Greece

A Greek default has been portrayed as a practical impossibility because it would tear the Eurozone apart and break several of the continent's largest banks. But now that Italy has begun to implode, the EU and ECB have decided that Greece is, relatively speaking, expendable.

As Italy sinks, France is leaking

After having maintained for the past few years that Greece neither could nor would be allowed to default, EU leaders have finally given in. Of course, the word now is that this can be a default that doesn't trigger a credit event, in which payments on credit default swaps come due. Good luck with that. The credibility of Europe in the financial markets is shot. Gone. Trillions more in taxpayer funds will be thrown at the issues, but it doesn't matter anymore.

Not coincidentally, the change in attitude on Greece comes at a time when Italy has come under intense pressure. It's time to cut losses. Getting Greece done will open up space and time to "save" Italy. Or so undoubtedly goes the reasoning. It's not going to work.

Italy is not the EU periphery; Italy is very much in the heart of Europe. The country's nominal GDP is over $2 trillion. And its debts are staggeringly high.

The US debt ceiling

Negotiations over how much spending to cut and revenue to raise before the US extends its debt ceiling are at an impasse, which is just as well, since even the most extreme proposed cuts were a drop of water in a flooding river. But even this turned out to be too much, and now they're considering just raising the debt limit while spending and borrowing continue unabated.

McConnell proposes giving Obama debt ceiling power

The top Republican in the Senate proposed on Tuesday giving President Barack Obama sweeping new power to, in effect, unilaterally increase the nation's debt limit to avoid a first-ever default on U.S. obligations.

The new mechanism would take the place of the current White House debt negotiations among congressional leaders and Obama. Those talks over spending cuts and tax increases have grown increasingly acrimonious.

Minority Leader Mitch McConnell, R-Ky., offered a new plan to allow the president to demand up to $2.4 trillion in new borrowing authority by the summer of next year in three separate submissions.

Those increases in the so-called debt limit would automatically take effect unless both the Republican-controlled House and the Democratic Senate enact legislation specifically disapproving it.

QE3

The past year's spike in oil and food prices -- and the attendant worldwide instability -- spooked US policymakers. And with the end of QE2 they've been desperately hoping that the economy would continue to grow unassisted, allowing Washington to stop flooding the world with credit. Not happening. Hiring has ground to a halt, home prices continue to fall and the system gives every sign of slipping back into recession. So -- with oil near $100 a barrel and gold at an all-time high -- the Fed is offering to ease again.

Fed weighing further easing, Bernanke says

Just two weeks after completing a second extraordinary effort to juice the moribund U.S. economy, the Federal Reserve is contemplating more "untested" steps, the head of the central bank said Wednesday.

Federal Reserve Chairman Ben Bernanke says the central bank is examining several untested means to stimulate growth if conditions deteriorate, even though the central bank believes the temporary shocks holding down economic activity will pass. The Fed at the end of June completed a plan to buy $600 billion worth of Treasury bonds in what markets have dubbed "QE2."

"The possibility remains that the recent weakness may prove more persistent than expected and that deflationary risks might reemerge, implying additional policy support," Bernanke told the House Financial Services Committee, in the first of two days of testimony about the economy and monetary policy...

..."One the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation," Bernanke said.

But there are a "range of uncertainties about the strength of the recovery and the Fed must engage in "prudent planning" to explore ways for stimulating demand, he said.

Bernanke discussed three approaches to further easing in his prepared remarks.

One option, Bernanke said, would be for the Fed to provide more "explicit guidance" to the pledge that rates will stay low for "an extended period."

Another approach would be another round of asset purchases, or quantitative easing, or for the Fed to "increase the average maturity of our holdings."

Finally, the Fed could also reduce the quarter percentage point rate of interest that it pays to banks on their reserves, "thereby putting downward pressure on short-term rates more generally."

"Of course, our experience with these policies remains relatively limited, and employing them would entail potential risks and costs," Bernanke said.

Bernanke was clear to stress that easing was not the only option under consideration and that the next Fed move could well be to tighten.

The broad consensus of Fed watchers has been for the Fed to hold rates steady until the middle of next year and then begin to exit from its ultra-low policy. Only a few economists had predicted an easing. But that was before the June unemployment report, which showed the labor market was just about dead in the water.

Some thoughts:

• This was inevitable because "extend and pretend" is by definition a temporary strategy. It works for a while but only for a while. And now it's ending everywhere, all at once.

• We've entered a new phase of the global financial collapse that began in 2000. Any one of these capitulations -- a Greek default, followed inevitably by either more PIIGS defaults or EU bailouts of surreal size, the admission that the US government will run trillion dollar deficits essentially forever, and a massive new Fed stimulus plan -- would by itself be enough to destabilize the global economy. Toss them all into the mix at once and you get chaos.

• "Chaos" in this case would mean spiking prices (oil is up today and gold and silver are soaring), wild interest rate volatility as bond vigilantes finally wake up and do to the US what they've recently done to Greece and Portugal, and crashing economies as rising uncertainty leads businesses to stop hiring. Welcome to the end of the Age of Paper.