U.S. and Euro Zone markets had a nice swing up last week. Even today, a Federal Reserve St. Louis bank president, James Bullard, said the Euro Zone was improving economically. But all that went down the drain when credit rating firm, Moody’s Investment Service, downgraded Greece four notches, from A3 to Ba1, giving their bonds junk status. Likewise, Moody’s did the same to municipal bonds for the city of Athens. Fitch and Standard & Poors had already downgraded Greek bonds to junk status.

Moody’s reasons for the downgrade are, “The Ba1 rating reflects our analysis of the balance of strengths and risks associated with the Eurozone/IMF support package.” The overall lack of confidence in Greece solving it’s sovereign debt issues sent markets down. The Dow Jones Index lost a 120 point mid-day rally, ending up 20 points in the negative.

Bullard spoke today to the Institute of Regulation and Risk North Asia in Tokyo. He said, “While the sovereign debt crisis in Europe is indeed a serious matter, the global recovery at this point looks very strong and seems unlikely to be derailed.” However, he also did warn of America’s own debt issues. “Irresponsibly high deficit and debt levels are not helping the U.S. economy and could damage future prospects through a loss of credibility internationally.”

This is known as speaking out of both sides of your mouth. On the one hand everything is just swell and can’t get worse. But on the other hand, if we keep spending like idiots, the future will be worse. Probably the most honest thing Bullard said was, “Governments must take aggressive action to earn credibility, and then sustain that effort over a long period of time.”

In Washington, Democrats in Congress has yet to submit a fiscal budget. Instead, a wide range of smaller spending bills to extend Medicaid and unemployment benefits, as well as assist states in meeting their public payroll shortfalls are floating about. Obama recently asked Congress to provide $50 Billion to help states meet budget woes, as well as over $200 Billion for the infamous ‘Doctor-Fix’ that was left out of the health care bill. All totally nearly a half-a-trillion dollars in additional deficit spending.

Of course, this does not include the addition money needed to meet our apparent commitment to the Euro Zone bailout, to help prop-up Greece, Spain and other nations inflicted by the Debt Contagion. Nor does it cover additional bailout money to help prop-up Fannie Mae and Freddie Mac. Democrats in Congress are reluctant to draft a budget given the voter angst and anti-incumbent wave this primary season for the 2010 Elections. Conservative Republicans have submitted a budget which is balanced and calls for deep spending cuts, but it is unlikely to see the light of day with Nancy Pelosi running the show. Moody’s downgrading Greece to junk status may only be the beginning, with bonds from more nations getting hammered.