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November 10, 2011

Italy Is Going Down and Berlusconi Is Not The Problem (Guest Post)

I think his problem may have been going after taxes on wealthy people, an object lesson as attention shifts to the US supercommitte proposal due out Nov. 23. There is very little headline news on that, by the way

Italy is finished. Rates above 6% reinforce that.   The 10 year Italiano is 6.82% this morning ahead of the latest ratline intervention.  The ECB couldn’t step up to the plate on Greece to finance a much smaller situation, so how could this possibly happen for Italy? Are we now going to be subjected to around the clock weekendism and Hail Mary rallies on this ridiculous notion?  We are seeing the cost of gimmicks as well,  the goon squad has effectively killed the CDS market, so now all these insolvent countries will need to raise money with credit insurance for buyers problematic. Speaking of gimmicks, how about the EFSF financing tool?  Duh, nearly a third of it is financed by Italy and Spain.  Back to the drawing board on that one. Really not much left of Europe, how about Uranus or Neptune as replacements?  I see Luxembourg is still a AAA. Somebody please help!!
source: Barclays

The notion of more austerity and  economic growth solving Italy’s debt trap is the pinnacle of silly season.  The effort to brake Italy’s negative market dynamics was admirable by Berlusconi in the past, but reality has now taken hold. Italy is where the US is going within a few years, if not months. Put that little prediction in a time capsule.

It also looks like the rats are abandoning ship right as it slips below the waves. The LCH effectively doubles deposit charges on Italian bonds. I wonder who is still hung out to dry on leverage on this one? Obviously the aforementioned EFSF and ECB is two of the elephants. They can send Italy part of the bill. Way, way too much faith in government carrying the whole ball and calling the same off tackle put it in the ratline plays.

About The Author - Russ Winter is a veteran investor, financial writer, world traveler, and he blogs at Winter Watch(EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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