Friday, October 07, 2016

The European Central Bank (ECB)
Is Funding The Italian Government 
& Its Massive Debt & Profligate Spending
John Rubino*: "Italy is the quintessential ungovernable society .. Its banks are pretty much zombies, loaded with fatal levels of bad debt but still shambling around thanks to repeated bailouts. The government runs consistently excessive deficits, so its debt load is growing at an unsustainable rate. And its people are more worried about protecting antiquated labor and tax regulations than competing successfully in a modern global economy. And yet bond investors love the country’s debt. The reason, as the above article explains, is that no one thinks of these bonds as Italian. Once the ECB buys them up (at a nice premium to the initial sale price) they’ll become, in effect, German debt, guaranteed, via the ECB, by that much stronger, better managed economy. So in the minds of bond buyers they’re not lending money for 50 years, but more like six months, until the ECB starts snapping them up. Which means the ECB is, in effect, directly funding the Italian government with newly-created Euros. Italy – and the rest of the peripheral eurozone countries – are thus handed an effectively-unlimited credit card allowing them to spend whatever they want, safe in the knowledge that it’s all covered by their friends in Brussels and Berlin. Wonder how they’ll handle that freedom?"
LINK HERE to the commentary

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