Depres­sione: Italy on the Brink

http://www.augustforecast.com/2013/03/13/findings-forecasts-03132013/

Depres­sione: Italy on the Brink
 
Gov­ern­ment aus­terity has pre­dictable after-effects, namely, a con­trac­tion of eco­nomic activity. Just ask Greece or Italy. It also has the effect of par­a­lyzing the social and polit­ical arena because trust is chal­lenged on every level.
 
It's a Cache 22 sit­u­a­tion though. When gov­ern­ments accu­mu­late so much debt that the market starts to ques­tion their ability to pay it all back, then lenders start demanding pay­ment. That's not totally unrea­son­able, con­sid­ering that a lender has every right to expect pay­ment from the borrower.
 
When a gov­ern­ment racks up debt faster than the economy grows, the even­tual cur­tail­ment of all reck­less spending is guaranteed.
 
By November 2011, Italy's debt crisis had already grid­locked the polit­ical process. Someone was going to get seri­ously hurt no matter which way they turned. If they defaulted on debts, then investors would be burned. If they raised taxes, then cit­i­zens would be burned. If they tried to shrink the size of gov­ern­ment, the economy would con­tract and everyone would get burned.
 
It's tempting to say "What a mess they had made of their national affairs" except that America has done exactly the same thing. The U.S. is on the same track, just a few miles behind.
 
When it became obvious that Italian politi­cians could not move for­ward with any solu­tion, the lenders stepped in and took over gov­ern­ment operation.
 
This is how and why Tri­lat­eral Com­mis­sioner Mario Monti came to be appointed (not elected) as Prime Min­ister of Italy. He was widely hailed as a tech­no­crat, in the sense of "rule by expert" vs. demo­c­ra­t­i­cally elected gov­ern­ment. According to BBC News at the time,
 
Mario Monti has been asked to form a new Italian gov­ern­ment to tackle an acute debt crisis which prompted the res­ig­na­tion of Silvio Berlus­coni. Mr Monti, an ex-EU com­mis­sioner, said he was starting urgent talks on his cab­inet, aiming to restore finances.
 
EU leaders hailed Monti's appoint­ment as "a fur­ther encour­aging signal… of the Italian author­i­ties' deter­mi­na­tion to over­come the cur­rent crisis." They com­pletely mis­read the appoint­ment: The Italian gov­ern­ment did not ask for Monti, but rather the EU lead­er­ship forced him down their col­lec­tive throats!
 
This was plainly evi­dent by the foot­note that stated "An EU team has begun work in Rome, mon­i­toring how Italy plans to cut its debt burden, 120% of annual eco­nomic output (GDP)." Thus, the lenders essen­tially appointed a bank­ruptcy judge who would pre­side over the affairs of the bank­rupt nation, to pro­tect the inter­ests of the lenders, not the debtors.
 
Over the next 12 months, Monti made sure that Italy fol­lowed the EU's ulti­matum to reduce gov­ern­ment debt by imposing aus­terity pro­grams to cur­tail spending.
 
On March 12, 2013, just 14 months after Monti's appoint­ment, the New York Times reports that
 
"Since a gov­ern­ment aus­terity plan took hold last year, the Italian economy has tum­bled into one of the worst reces­sions of any euro zone country… Busi­nesses of all sizes have been going belly up at the rate of 1,000 a day over the last year; espe­cially hard hit among Italy's esti­mated six mil­lion com­pa­nies are the small and mid­size com­pa­nies that rep­re­sent the back­bone of Italy's $2 tril­lion economy.
 
"But Italy's long­standing prob­lems have grown worse in the last year as tax increases and spending cuts were pressed by Mr. Monti, who took over as prime min­ister in November 2011 after the euro crisis forced out Silvio Berlus­coni. Last year the economy shrank 2.4 per­cent."
 

One small Italian busi­nessman Emanuele Tedeschi, stated "In one and a half years, every­thing changed. People started feeling afraid, and they stopped spending money. All the promises Monti made to relaunch the economy and help us enhance pro­duc­tivity never materialized."
 
The article closes on a depressing note:
 
"Econ­o­mists worry that the pace of busi­ness clos­ings may accel­erate as long as the country lacks a func­tioning gov­ern­ment. The departing prime min­ister, Mario Monti, was ousted by austerity-weary voters, but the elec­tion left Par­lia­ment grid­locked."
 
Ousted, indeed. Voters rightly blame Monti for crashing their economy, but they don't under­stand that his pri­mary goal was to "pri­va­tize" Italy's remaining hold­ings in order to pay off debts and enrich the mer­chants of glob­al­iza­tion. Pri­va­ti­za­tion has long been a major strategy of the Tri­lat­eral Com­mis­sion and its "New Inter­na­tional World Order," designed to con­sol­i­date wealth into the priv­i­leged few who belong to it.
 
In fact, pri­va­ti­za­tion has plagued Italy since at least 1992, thanks to the same people who have engi­neered modern glob­al­iza­tion. As this OECD report from 1997 shows, pri­va­ti­za­tion was in full swing by 1997 as gov­ern­ments sold off prized pos­ses­sions by the billions.
 
What assets Italy has left today, if fully sold off, would only pay down about 7 per­cent of its overall debt. And yet, that is what is next for Italy. After all is said and done, Italy will have no public ser­vice assets and will still be mas­sively bank­rupt with a trashed economy. In the end, the cit­i­zens will ulti­mately bear 100 per­cent of the debt. Pre­dictably, they will rebel just as they have in Greece.
 
Noted econ­o­mist Nouriel Roubini recently called Italy a "tsunami risk":
 
"In Italy there's the begin­ning of a polit­ical storm. The result of the Italian elec­tions signal that the majority of people are against aus­terity and not just in Italy also in Lisbon half a mil­lion people were in the streets and 25 per­cent unem­ploy­ment in Greece and Spain, 50 per­cent amongst young people and there is restlessness.
 
"Italy is not Greece and it has leverage within the euro zone and can cred­ibly threaten Ger­many by saying that if there is no loos­ening of con­di­tion­ality things could become implo­sive and [it could poten­tially] exit from the euro zone."
 
Unfor­tu­nately, there is no fix for Italy, and it will go from bad to worse as polit­ical forces clash with each other, the finan­cial com­mu­nity and lenders. The pri­mary blockage to any for­ward progress is that trust has evap­o­rated. People don't trust gov­ern­ment, bankers and glob­al­ists. Polit­ical par­ties don't trust each other. The gov­ern­ment doesn't trust the EU gov­er­nance machine. The bankers cer­tainly don't trust the gov­ern­ment. Basi­cally, it's reducing to a state of anarchy where society just melts from the top down.
 
The con­ta­gion of Greece has thor­oughly infected Italy and for all the same rea­sons. Por­tugal, Spain and France are close behind. Ger­many is also showing signs of weak­ness. When suf­fi­cient EU coun­tries are reduced to rubble, their euro cur­rency will dis­solve and Europe's age-old rival­ries will resur­face to threaten another con­ti­nental war. All because of debt, greed and stupidity.
 
As I have said before, there is no pos­si­bility that America will be unaf­fected by what hap­pens in Greece, Italy and Europe. This is a global problem of the greatest mag­ni­tude, and in the end we will all sink or swim together.
 
Mean­while, a recent ABC head­line sums our President's posi­tion – "Pres­i­dent Obama: There Is No Debt Crisis".


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