ITALY Bailout Announced ???

[Reality Check]

http://www.telegraph.co.uk/finance/fina ... -deal.html

EU - is said to be on the verge of announcing a 600 Billion bailout of Italy and Spain ( a new, additional Spanish Bail Out ).

Catch is - based on the article - it is not really a Bailout, but more of an interest rate intervention.

Or as the U.S. FED describes it - buying government bonds on the private market to drive interest rates down.
In the case of the U.S. FED they are using printed dollars to buy the government bonds.

The 600 Billion also appears to include monies already used to bail out Greece, Spain and other countries.

[Trevor]

I wouldn't doubt that's coming soon after the bailout for Spain. Italy's bond yields are around 6% at the moment, but considering the state of things, that could change very quickly.

[Reality Check]

No doubt it will be needed at some point.

But this article describes a non-bailout, bailout, using monies that were already substantially used for Greece, Spain and likely other countries as well...

[Trevor]

Greece collapsing Europe could survive. Spain, on the other hand, will be much more difficult and if you add Italy to that list, they're finished. I believe the former will be reduced to junk bonds by the end of the year.

Even China and India are slowing down. Estimates for Chinese growth this year at 7.5 percent, the lowest in thirty years. It could fall even lower than that. As for India, their 1Q growth is something like 5.5 percent. I don't know why people expected them to grow and grow. Sooner or later, every country suffers a recession.

[Reality Check]

http://www.guardian.co.uk/business/2012 ... f-comments

The Italian Prime Minister says the Euro Leaders have only one week to fix Italy and Spain.

How many decades of spending beyond their means with borrowed money did it take them to get here - and he gives Germany and France one week to solve Spain and Italy.

No doubt the solution involves Germans being on the hook for Italy's borrowing and Germany receiving "promises" from an Italian government which can not keep them in return.

Does anyone really believe that Italians and French are going to raise their retirement age to the same as Germany ( 67 ) in return for German help ?

No, France just voted to have Germany pay for the French free lunch and one would expect Italy and Spain want the same deal from the Germans.

France just lowered their retirement age back down to 60 by electing a Socialist President who issued an executive order lowering it down from 62 to 60, thus reversing the "sever austerity measure" the previous "conservative French government" had implemented.

[John]

Those are very interesting comments.

[Reality Check]

Italy and Spain complain about extremely high interest rates killing their economy.

Seven percent is not extremely high.


In fact, by historical standards it is not even high.

The problem is the total debt of almost every European country is so high that even historically moderate interest rates consume a huge percentage of their budgets and threaten to take away the free lunch.

The problem is the accumulated debt of these countries is just too high after decades of funding the western European government programs with ever more borrowed money.

[vincecate]

Italy and Spain complain about extremely high interest rates killing their economy.

Seven percent is not extremely high.

In fact, by historical standards it is not even high.

About 1980 I took $6,000 I had saved from my paper route and invested in a 20% second deed of trust for 3 years.

If the US had a 7% interest rate now, then the interest on the US government debt would be clearly unsustainable. They are printing money so fast that eventually we will get inflation higher than 7%. So interest rates will go higher or the Fed will be the only buyer of debt, and print even faster. All it takes is for the velocity of money to stop going down.

[Trevor]

I think 7 percent is about what our bond yields were in the 1980's. Today, it's less than two percent, but even so, the amount of money we're spending just in debt interest in astonishing and rising fast. Imagine how high it would be if it just went up to 3-4 percent, which it easily could.

[vincecate]

I think 7 percent is about what our bond yields were in the 1980's. Today, it's less than two percent, but even so, the amount of money we're spending just in debt interest in astonishing and rising fast. Imagine how high it would be if it just went up to 3-4 percent, which it easily could.

Today they are increasing the monetary base very fast. This is much more like the 1970s than the 1980s.