Over the years I’ve spent much time talking about Italy as the next ticking time bomb for Europe and the global banking system.
Its government debt is the third highest in the world at 132 percent of GDP, coming only after Japan and Greece.
Its private debt is 23 percent of the Eurozone versus Greece’s 3 percent.
But here’s the bigger issue: Italy’s bad loans are 40 percent of the Eurozone.
Just one country comprises 40 percent. That’s crazy!
So, you can see how the euro and Eurozone can’t afford to bail out Italy. This has been obvious from the beginning. We’ve been saying so for years.
Italy’s already bankrupt. It’s just that no one has announced it yet.
Its banks keep propping up zombie companies with just enough credit for them to meet their debt obligations.
In other words: lend them just enough to pay you back and stay current on their debt obligations, but not enough to grow or get into more trouble.
It’s a form of denial. Nothing more than false hope that the economy will magically get better down the road.
The paradox in Italy is that the banks can’t get healthier without economic growth—and the economy can’t grow without healthy banks to lend money.
Now that the government’s divided, and the rising populist parties are calling for higher spending and even breaking away from the euro, the stock market and Italy’s bond market are falling.
The markets are finally starting to get serious about Italy and the imbalances in the entire euro system. Only Mario Draghi’s incessant stimulus, years after the U.S. tapered, has kept Italy’s 10-year bonds well below the much more solvent U.S. Treasury’s. (We aren’t pretty either, just the best house in a bad neighborhood.)
Personally, I think it’s about time.
Italy’s yields spiked strongly on Tuesday, up to as high as 3.18 percent, while the U.S. 10-year fell sharply, down to as low as 2.97 percent from recent highs of 3.11 percent. But, more importantly, look at the most recent massive spike in Italy’s yields.
Italy’s bad debts had climbed to 14 percent of loans as of 2014, and now they are near 20 percent. Meanwhile, 10 percent is technically bankrupt.
Italy is the next Greece, and it’s too big to fail or bail out. Within the next six to 18 months, the euro and Eurozone will be imploding in some fashion: one of many coming to the global economy.
And it couldn’t have happened to a nicer group of central bankers!
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
The public plans to build a rehabilitation center for dolphins in Sochi
The Dolphin Rescue Center is Russia's first multifunctional center with objectives to: assist wild dolphins, rehabilitation, scientific research, and educational...
Could the Coronavirus finally burst the debt bubble?
Nothing seems to be getting in the way of the melt-up. Not even coronavirus has knocked it off its upward...
Gold continues its bull market advance
The Dow Jones is continuing its upward trend, making a new all-time high on Wednesday. Since the end of September...
Hepatitis C drugs save Spain $681 million
Hepatitis C is a contagious viral liver disease and has become the most common blood-borne disease in the U.S., with...
The number of direct electricity consumers triples in two years
Direct consumers to the electricity market have tripled their influence in the last two years and now represent 2.5% of...
- Featured4 days ago
La perturbation numérique prend l’assaut du département de la Dordogne
- Featured7 days ago
What is in store for the Brazil fintech sector in 2020?
- Business6 days ago
Rural incubator, UNIQORN, takes on World Business Angels Investment Forum in Istanbul
- Business6 days ago
America’s ban on Chinese drones has created an enormous opportunity for investors