Italy and Spain debt bomb about to explode

[K. A. Pital]

Heard on TV interest on Italian and Spanish bonds breached 6 percent.

Good times ahead. How much paying-up for Franco-German bankers' and corrupt officials' gambling on Eurozone periphery debt with the money given to them to "rescue" the economy in 2008 will the people of Germany tolerate? This is getting simply crazy.
http://www.guardian.co.uk/business/2011 ... taly-spain

Bond yields in both the founder members of the single currency hit monetary union records, forcing Spain's prime minister, José Luis Rodríguez Zapatero, to abandon his holiday plans. Italy responded to a fresh wave of losses in its banking sector by announcing a crisis meeting of economic policymakers.

Interest rates on Spanish and Italian bonds rose to well above 6%, the level that signalled the beginning of the bailout process for Greece, Ireland and Portugal.

Meanwhile, interest rates on assets seen as safer fell sharply, with the yield on UK 10-year gilts dropping to an all-time low of 2.77%. Gold rose to a new record level for a ninth day in a row on Tuesday.

Fuckers. I'm amazed by the brazenness with which bankers did this whole affair. Now they will effectively complete yet another huge cash transfer from public funds of powerful EU members into their pockets via Eurozone periphery debts. *grinds teeth*

The "saviours of economy" should not have gotten a fucking penny in 2008. Anyone who voted for bailouts should be ousted from power and fucked with a strapon until his breasts bleed.

[KrauserKrauser]

For some reason I recall Thanas stating that everything was fine over in the Eurozone and Italy and Spain would never face the same pressure that took down Greece.

Interesting.

Buy Puts a week ago.

[Starglider]

Good times ahead. How much paying-up for Franco-German bankers' and corrupt officials' gambling on Eurozone periphery debt with the money given to them to "rescue" the economy in 2008 will the people of Germany tolerate?

Quite a lot more. The euro is the ultimate 'too big to fail' - not in reality of course, just in the minds of the eurozone politicians.

Gold rose to a new record level for a ninth day in a row on Tuesday.

Are liberals are still morally disallowed from buying it? I'm expecting a decent correction in the near future and if that happens I'll get some more.

Fuckers. I'm amazed by the brazenness with which bankers did this whole affair. Now they will effectively complete yet another huge cash transfer from public funds of powerful EU members into their pockets via Eurozone periphery debts. *grinds teeth*

You have to admire the twisted genius of it. Originally, it seemed that the EU was good for nothing but pointless regulations and making Germans pay stealth reparations to French farmers. Now it has been turned into a powerful mechanism to suck the wealth of half a billion first-world humans into European, US and UK investment banks. Driven by the arrogance and hubris of Europe's political elite, powered by the eurosocialist sentiment to have ever bigger government 'make everything ok by spending more money', it will eventually explode but not before making the shareholders of banks and hedge funds considerably wealthier.

[Thanas]

For some reason I recall Thanas stating that everything was fine over in the Eurozone and Italy and Spain would never face the same pressure that took down Greece.

Vendetta much? And I doubt I said that, care to provide a link? What I remember saying is that Italy and Spain will not fall the same way Greece did.

And they still do not face the same pressures as Greece did. Link, in German.

[someone_else]

What I hear around from economy experts is that Italy is too big to be saved like greece.

They also say that our crisis is more due to ineptitude of our politics than induced from external factors. Which sounds more or less right.

I really hope we last until the elections next year.

[Broomstick]

Welcome to the new global economy! When everything is good everyone benefits! Yay! When multiple countries start to have problems however, we all share the pain.

If it isn't Iceland's economy imploding it's Greece going belly-up. If it's not Greece it's the US threatening to default over their debt ceiling. If it's not the US it's Italy and Spain having problems.

More and more it looks like the global economic system is tottering now. Too many balls are being juggled and sooner or later one will drop to the ground instead of being caught, throwing off everything else. I don't know which particular crisis will bring the house of cards down, but clearly the margin for error here is getting thinner and thinner. Maybe not even be a debt problem - if the world gets another major multi-disaster like Japan's occurring in a major player it could bring the whole system down. Eventually we're going to run out of bailouts and rescues.

Last I heard on the evening news they had worked something out for Italy. Didn't hear anything for Spain.

[Starglider]

Too many balls are being juggled and sooner or later one will drop to the ground instead of being caught, throwing off everything else.

Remember that hedge funds can make huge amounts of money by predicting what will collapse and when. That creates a big incentive to push on weak points. Then there are all the arbitrage strategies that profit from almost any kind of volatility, and the fact that chaos causes high volume which is good for all banks and brokers profiting from flow trading. Even major drops can be good; panic institutional investors fleeing to cash means lots of opportunities for the prop desks and HFTs to frontrun them...

[Broomstick]

Well, sure, even in the worst times someone profits - wars are good for crows and famines are good for vultures. The thing is, though 99% of humanity will suffer in a Big Crash. As most of us will be in the suffering majority, that's what the majority of us care about.

The problem is, of course, it's the 1% who profit from disaster who may have the most control here. Can't say myself, it just looks like we're headed towards a Bad Thing.

[KrauserKrauser]

Vendetta much? And I doubt I said that, care to provide a link? What I remember saying is that Italy and Spain will not fall the same way Greece did.

And they still do not face the same pressures as Greece did. Link, in German.

You might not have said those exact words, if not mea culpa. I'm just using you as the generic Eurozone apologist backpedaling mouthpiece.

Greece won't default. Portugal and Ireland are fine. Spain in trouble? Preposterous. Italy in trouble? Fuggedaboudit.

Not to say the US is in much better position to fling pooh but will the Germans really be able to handle being the guarantor of the entirety of Europe? Because when the inevitable happens and France gets a downgrade, Germany will be the only thing holding the Eurozone from careening into the abyss. My money is on no, well it would be if I had any.

[Thanas]

Vendetta much? And I doubt I said that, care to provide a link? What I remember saying is that Italy and Spain will not fall the same way Greece did.

And they still do not face the same pressures as Greece did. Link, in German.

You might not have said those exact words, if not mea culpa. I'm just using you as the generic Eurozone apologist backpedaling mouthpiece.

Oh wow.

EDIT: You know what? Not going to lower myself to your level.

[KrauserKrauser]

You are right, the US is in an even worse one right now, what with the stupid republicans holding up tax hikes.

Hey, we need to keep our rich people richer than ever, I hear that we win if they have the highest score.

Meh. I'd be willing to bet you a 1000 Bucks right now that Europe will survive this....oh wait.

Maybe we'll just use a barborous relic that definitely IS NOT money, gold.

Europe will definitely survive it, it's not going to sink into the Med or anything. The land that is defined as "Europe" won't change. I do think that some of the periphery countries might drop out of the Euro. Being a debt slave just so Germany can have an artificially devalued currency doesn't sounds like much fun to me.

[Thanas]

Europe will definitely survive it, it's not going to sink into the Med or anything. The land that is defined as "Europe" won't change. I do think that some of the periphery countries might drop out of the Euro. Being a debt slave just so Germany can have an artificially devalued currency doesn't sounds like much fun to me.

Well, Greece does not want to get out of the Euro. Probably some nations are going to reconsider wanting to join, but why would Italy or Spain leave the Eurozone? Ireland did not and it was actually closer to a default than either Italy, Portugal and Spain.

[K. A. Pital]

Newsflash: Germany said it won't save Italy. Woo-hoo!

[J]

Newsflash: Germany said it won't save Italy. Woo-hoo!

We'll see. As I recall the Germans didn't want to bailout Greece at first, but soon gave in.


Also, my contacts have obtained the top secret agenda of the emergency meeting which is currently taking place.
http://globaleconomicanalysis.blogspot. ... risis.html

Summary of Meeting Agenda

Few details have been released on the "secret" meetings but I have a list of agenda items in advance.

1. How to kick the can down the road
2. How to make it look like we are not kicking the can down the road
3. How to get Germany to agree to kick the can down the road
4. How to silence Germany if Germany refuses to kick the can down the road

[Teebs]

We'll see. As I recall the Germans didn't want to bailout Greece at first, but soon gave in.

I don't think there's any realistic chance of Germany bailing out Italy simply because it's not capable of it. Italy is just too big, and presumably all the other countries that are in trouble would also be needing help if Italy went. With all the will in the world I don't think Germany could do it.

[Thanas]

We'll see. As I recall the Germans didn't want to bailout Greece at first, but soon gave in.

I don't think there's any realistic chance of Germany bailing out Italy simply because it's not capable of it. Italy is just too big, and presumably all the other countries that are in trouble would also be needing help if Italy went. With all the will in the world I don't think Germany could do it.

Theoretically, we could do it. However, we would pretty much mortgage our future on the country of Berlusconi shaping up and getting their stuff together. And for all the crap I have given the Greeks with regards to their ability to reform, I feel more optimistic about them than Italy in that regard.

[Teebs]

Theoretically, we could do it. However, we would pretty much mortgage our future on the country of Berlusconi shaping up and getting their stuff together. And for all the crap I have given the Greeks with regards to their ability to reform, I feel more optimistic about them than Italy in that regard.

Theoretically... but Italy has a truly gigantic debt burden and an economy almost 2/3 the size of Germany's. If you take into account that if Italy goes Spain will almost certainly have gone too, then no way. Spain + Italy have a larger combined economy than Germany. I have to wonder whether Italy have been cooking their books in the same way Greece has, in which case things could be even worse than they currently look.

[Edi]

Having just come back from Italy, the following is anecdotal, so take it for what it's worth, but they are in deep shit.

I've been to the same place, Pesaro, five times now, and this year several businesses that had been there for years were gone. More and more properties stood empty and were up for sale or rental. There were just a fraction of the tourists there that there would normally be (few foreigners, mostly internal Italian tourism). Restaurants that would normally have been full were half empty or deserted etc.

And that was just the immediately visible stuff. I have a week's worth of catching up on news to do, but it doesn't look good from that point of view and the newspaper headlines I saw over there weren't good either.

Italy could be in a lot more trouble than is apparent just now. So could Spain. I don't know.

[Broomstick]

Let's get real - we could all be in a lot more trouble than we think we are. As I keep telling my friends who harp about how the US is going down the shitter it's NOT just here, it's not just one country, everybody, or nearly so, is having serious problems.

I do not want to see a global collapse, but there is the real possibility of one, and one severe enough to slam even nations like Germany that seem pretty secure right now. I just hope the rickety structure can be propped up enough long enough to avoid the worst outcomes. We are collectively getting into territory where there are no truly good choices, only a matter of which one is least bad.

[Starglider]

I just hope the rickety structure can be propped up enough long enough to avoid the worst outcomes.

Why do you believe that propping things up will in any way improve the outcomes? Every day that you prop things up debt loads increase, the more unfavourable the demographics get, the more businesses fail, the more credibility the dollar loses and the more cheap oil is used up. There is no secret master plan in operation to turn things around. The worse these things (and many more) get, the more they will prolong the real crash and hinder a serious recovery. There is nothing to gain by waiting, except for the bandits currently looting the system, who would love to have even more time to do so.

[Broomstick]

Look, if I had a debt of, say, $10,000 today and my creditors wanted it RIGHT NOW!!!! paying it back would utterly bankrupt me. Give me 5 years to pay it off and repayment structure and it's much more likely I can pay it back without hurting myself, and with the creditors getting all they have coming (plus interest). Sure, I have to tighten my belt for those five years, and my creditors need to exercise some patience, but if both parties can handle it we'll all be OK in the end.

IF the structure can be propped enough long enough for the vapor and hot air to bleed off the system gradually we might be able to deal with enough of it per unit of time to avoid a severe crash or, as they say "soften the landing". And that is worthwhile, given the potential consequences of a hard crash. On the other hand, if the whole structure comes tumbling down over the course of a week, sure, all the imaginary shit and bloat disappear overnight but the result will be fucking horrible. If we get into that sort of shit what we're experiencing now will seem like the good old, golden days upon which we look back fondly with desperate longing.

[Stark]

Why do you believe that propping things up will in any way improve the outcomes? Every day that you prop things up debt loads increase, the more unfavourable the demographics get, the more businesses fail, the more credibility the dollar loses and the more cheap oil is used up. There is no secret master plan in operation to turn things around. The worse these things (and many more) get, the more they will prolong the real crash and hinder a serious recovery. There is nothing to gain by waiting, except for the bandits currently looting the system, who would love to have even more time to do so.

In this specific situation, do you think they should wear the current problem rather than putting it of at great cost while making it worse? Where would these countries get non-incompetent/corrupt governments?

To be honest, it seems that these countries have been lying about their economies to the EU for some time, and I would have thought that would be grounds for expulsion.

[Starglider]

Look, if I had a debt of, say, $10,000 today and my creditors wanted it RIGHT NOW!!!! paying it back would utterly bankrupt me.

No one is trying to accelerate the maturity schedule of these countries debt. On the contrary the ECB has tried quite hard to postpone it. The debt load is approaching and in some cases exceeding the ability of certain nation states to service it. The more you postpone default, the more the debt compounds and the more investor money will be lost when the final default occurs (of course you can print your way out of default, but the inflation that causes is even worse).

Give me 5 years to pay it off and repayment structure and it's much more likely I can pay it back without hurting myself,

If you cannot currently make your interest payments, and your income has been stagnant or declining for the last five years, the prospects for a sudden huge increase in your income and hence viability of your debts are neglibile. I repeat, the demographics are getting worse. The commodities are getting more expensive. The number of people semi-permenantly locked out of the labor force increases every day. This is not a business cycle recession, it is a depression caused by major structural problems. The bankers sure want you to believe it's a business cycle recession that more subsidy will fix, because they're now set up to capture the lions share of that spending directly into profits for the wealthy. Don't fall for it. Admit that we are better off with a nasty crash now than a horrific crash later.

IF the structure can be propped enough long enough for the vapor and hot air to bleed off the system gradually

No such bleeding is taking place. All the politicians want to do is postpone things until they're out of office, and the 'inevitable recovery' that Keynesian economists locked into the infinite growth business cycle mentality still insist will come... from somewhere. You can push down some bubbles in the wallpaper but even that weakens the whole structure every time you do it. The global financial situation is so precarious that sooner or later something will set off the chain reaction. Might as well do it now before they have a chance to stack even more explosives.

If we get into that sort of shit what we're experiencing now will seem like the good old, golden days upon which we look back fondly with desperate longing.

We will and yes, we will. Frankly, both the US and Europe had the chance to take a little pain and sort things out in 2002, and failed to do so. The chance of a 'soft landing' was squandered. At this point we are looking at five to ten years of real pain and then a decent chance at a recovery. That's still better than a lot of possible outcomes; leave it any longer and the chances of the genuinely scary, collapse-into-war-and-totalitarianism outcomes starts shooting up.

[Starglider]

In this specific situation, do you think they should wear the current problem rather than putting it of at great cost while making it worse? Where would these countries get non-incompetent/corrupt governments?

In practice they can't and won't. The pretense of everything being under control will go on as long as possible. The books will not just be cooked, they will be baked and boiled dry. Propaganda will continue to ramp up and continue to be more and more disconnected from reality. Ratings agencies will either be co-opted or scorned by states and locked out of the central bank collateral process. Personally I am trying to prepare for a massive financial crash, a final desperate round of state intervention, failure of that after a year or so of central bank flailing, breakup of the euro, loss of dollar reserve status, huge inflation in several currencies, riots, an uptick racial and religious violence, goverments toppling, extremist parties rising to power, a global 'lost decade' etc.

Hopefully we won't have oil supply issues on top of that, but if the Middle East seriously flares up (i.e. Israel and Iran chose the worst possible time to go at it), breakdown in social order over wide areas, to the level we saw in post-Katrina New Orleans, is quite possible.

[Stark]

I'm pretty appalled that ratings agencies are being so lame during these situations; while it's not hard to understand that they're being leaned on/corrupt/playing their own game/etc, it -should- fundamentally undermine confidence in the entire system that such a major balance element is essentially impotent.