Just Pretend.

It used to be called Extend and Pretend; the idea being that if you pushed out the due dates on loans, economic growth would restart and cure the "credit problem."

Extend and Pretend lasted about 3 years.

Now we're in the era of Just Pretend.

Just Pretend is multi-faceted. We pretend that we're surprised by S&P's downgrade of Italy, even though everyone knows that Italy is a basket case. We pretend that Greece is not insolvent. We pretend that Angela Merkel has the political muscle to save the day. We pretend that there is no run on the French banks.

One day soon, the markets are going to stop pretending.