The Beginning Of The End
The Beginning Of The End By Michael T. Snyder - Kindle Version

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Arrivederci Berlusconi

Oh, how the mighty have fallen.  In just a matter of days, two of Europe's most venerable leaders have been toppled.  George Papandreou was the third member of the Papandreou dynasty to be prime minister of Greece.  Silvio Berlusconi had dominated Italian politics for nearly two decades.  But now they are both heading out the door and the international media have been reporting on their resignations with the kind of enthusiasm that is normally reserved for sporting events.  "Down goes Papandreou!  Down goes Berlusconi!"  If you didn't know better, you would almost be tempted to think that some of the recent news reports were describing a boxing match.  But this is what happens when debt problems spiral out of control.  It is the leaders who take the fall.  So will the resignations of Papandreou and Berlusconi help anything?  Of course not.  Europe is still headed for a financial collapse of epic proportions.

As I wrote about recently, it has been the fumbling of the Greek debt crisis by European leaders which has set the stage for the burgeoning financial crisis in Italy to go to a whole new level.

Once the Greek debt deal was announced, I warned that it would shatter confidence in the sovereign debt of the rest of the PIIGS and it would cause their bond yields to soar.

That is exactly what has happened.

The yield on 10 year Italian bonds (probably the most important financial number in the world at the moment) is now up to 6.7 percent.

Never before in the euro era has the yield on Italian bonds been as high as we have seen this week.

So why is this important?

Well, the reality is that Italy simply cannot afford to service its massive national debt when yields are this high.

We are officially in the danger zone.

Carl Weinberg, the chief economist at High Frequency Economics, recently said the following about what would happen if Italian bond yields go up into the 8 to 10 percent range....

"If it has to pay those yields to finance itself, Italy is dead, and the sovereign crisis just blew up"

So watch that number very carefully over the next few months.

Italy is being called "too big to fail, too big to save".  There is no way that Europe can afford Italy to crash, but there is also no way that the rest of Europe can put together enough money for a full scale bailout of Italy.

So there is panic in the air.

The Italian government is in a state of near chaos and over the past couple of weeks we have seen Berlusconi's coalition break down.  Now Berlusconi has agreed to resign, and the future of Italian politics is murky at best.

The following is how a Reuters article described the agreement for Berlusconi step down....

Berlusconi confirmed a statement from President Giorgio Napolitano that he would step down as soon as parliament passed urgent budget reforms demanded by European leaders after Italy was sucked into epicenter of the euro zone debt crisis.

The votes in both houses of parliament are likely this month and they would spell the end of a 17-year dominance of Italy by the flamboyant billionaire media magnate.

Many believe that the departure of Berlusconi is going to pave the way for brutal austerity measures to be imposed on the Italian people.

Suddenly, it very much feels like we are watching a replay of what has happened in Greece over the past couple of years.  Just check out the following excerpt from a recent article in the London Evening Standard....

The Italians feel they've been humiliated by having to accept that monitors from the IMF will be arriving in the country this week to oversee a rise in pension ages, a sell-off of state assets and new rules to make jobs less secure.

Does that not sound like exactly what happened in Greece back near the beginning of their crisis?

In Greece, brutal austerity measures demanded by the EU and the IMF plunged the country into a depression, tax revenues plummeted, Greek debt exploded to even higher levels, bond yields soared into the stratosphere and the EU and the IMF demanded even more austerity measures be implemented.

Is the same sad story going to play out in Italy?

The Italians are definitely going to agree to some pretty significant budget cuts.  But if bond yields keep rising, they are going to wipe out all of the savings from the budget cuts and then some.

This is why I keep preaching about the horror of the U.S. national debt over and over and over.  If you don't deal with it when you can, eventually interest rates rise to unbearable levels and a horror show quickly unfolds.

Anyway, right now Italy has a debt to GDP ratio of 118 percent.  If they keep expanding that debt it is going to result in a financial nightmare, but if they try to implement strict austerity measures it is also going to result in a financial nightmare.

They are damned if they do and they are damned if they don't.

Of course we should not forget about Greece.

The EU has been freaking out for quite a while about what to do about tiny little Greece.

Now that George Papandreou has been kicked to the curb, it looks like Lucas Papademos is going to be the next prime minister of Greece.

Papademos previously served as the governor of the Greek central bank, as a vice president of the European Central Bank and as a senior economist at the Federal Reserve Bank of Boston.

In other words, he would be the ideal choice of the international banking community.

Not that anyone is going to be able to do much for Greece at this point.  Greece is a financial basket case, and unless someone gives them gigantic piles of money for free that is going to continue to be the case.

A year ago, the yield on 2 year Greek bonds was a bit above 10 percent.  Today, the yield on 2 year Greek bonds is over 100 percent.

If you want to see what a financial meltdown looks like, just check out what is happening in Greece.

The rest of Europe is in panic mode too.  For example, France is desperate to keep their AAA credit rating.  In an article for the Telegraph, Ambrose Evans-Pritchard described the austerity measures that France is implementing in an attempt to head off a debt crisis of their own....

The belt-tightening plan -- the second package since August, taking total cuts to €112bn -- include a 5pc super-tax on big firms, a rise in VAT on restaurants and construction, and cuts on pensions, schools, health, and welfare. It is the latest squeeze in a relentless campaign of fiscal tightening across the eurozone.

In the end, all of this is too little, too late.

Europe is heading for a date with destiny.  They have spent themselves into oblivion and now they are going to pay the price.

Some members of the financial community fear that a full-blown crisis could erupt at any moment.  For example, according to Business Insider, Colin Tan of Deutsche Bank recently said that he believes that it is possible that "we could be in full crisis mode" by the time the week ends....

Its not inconceivable that we could be in full crisis mode by the end of this week. The situation with Italy feels increasingly like one that has little chance of materially improving until some
extreme pressure is put on someone to act. It may not come to a head this week but the signs are not good that we can avoid an extreme situation emerging soon.

For those of you that are freaking out about now, don't worry too much.  A full-blown crisis is not going to happen this week.

But time is running out.

And when Europe comes apart, it is going to have a dramatic impact on the United States as well.

According to an article in the Financial Post, the Federal Reserve made the following statement in a report about a survey that it just released....

"About one-half of domestic bank respondents, mostly large banks, indicated that they make loans or extend credit lines to European banks or their affiliates or subsidiaries"

Big U.S. banks have a lot of exposure to European debt and to European banks.  When the financial dominoes start to fall, a lot of those dominoes are going to be in the United States.

One of the biggest dangers to be concerned about are all of the credit default swap contracts that U.S. banks have written on European debt.  Just check out what a recent article posted on the website of MSNBC had to say about that....

U.S. banks have written about $400 billion in CDS contracts on European sovereign debt, according to the Bank for International Settlements. Those payouts would be triggered if Greece or Italy defaults. Because financial institutions are not required to report their CDS holdings, little is known about which banks or investment firms are on the hook, and for how much.

As I have written about previously, there is a very good chance that the world could be facing a massive derivatives crisis at some point in the next five to ten years.

If you hear the news talk about a "problem with derivatives" or a "derivatives crisis" then you will want to pay very close attention.

Over the past 30 years, the global financial system has constructed a gigantic mountain of debt, risk and leverage unlike anything the world has ever seen before.

At some point the whole thing is going to come crashing down.

When it does, it is going to affect the entire globe.

A huge storm is coming.

Get prepared while you can.

 

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  • Michael

    How can a person protect themselves and maybe profit for this mess?

    • 007

      For the shortterm short the euro. Buy gold as it dips. Gold will dip as dollar rises.

      • Michael

        I agree with you – the Euro is going to be heading down big time.

        Michael

    • REED RICHARDS

      Michael,

      VIVE LE DOLLARI!!!!

      Berlusconi is a human piece of globalist puppet garbage, and good riddance to him. He, like the amerikan puppet president Barack Hussein Obama, is part of the problem and will never be part of the solution. And yes, the Euro is crashing and burning because that is what goldman sachs and jp morgan want. In this fashion, the dollar remains world reserve currency and no one else would get the stupid idea of trying to buck the amerikan empire by attempting to sell oil or anything else in Euros…………

  • Jerry

    Sweet!

    I can’t wait

  • Eric Rasbold

    How Long?

    Not Long. Get Ready.

    May Your Dow Never Jones.

    In Lak’ech Ala K’In

  • Highspeed

    Great article!!!

    +1

    • Michael

      As always, I very much thank everyone that takes a few seconds to give the articles a +1 :)

      Michael

  • Paddy

    If i didnt read this, i cant imagine how i might feel right now.

    But as fate has it, i stumbled my way around the internet tonight down at the bottom of the globe in New Zealand. And I am more informed about a very real future on the horizon.

    You seem, to say be prepared for a global societal meltdown. But you should be saying look towards a brighter future, Through something like the Zeitgeist Movement.Promote unity. Not individual survival.

    • James

      You’re kidding right? The Zeitgeist utopia will end up hell just like all other utopias.

      Those utopias always try to ignore human nature and it never ends well.

  • Highspeed

    The 10 year Italian bond is now at 7.2 yield. Europe is falling faster than you can imagine. Better get those preps ready and settle in for a long winter.

    • Michael

      Wow that was fast. I had not even checked the yield yet today.

      Michael

  • http://TheEconomicVoice Gregge Johnson

    The Federal Reserve just pumped $5 billion US dollars into greece////of course their man Papademos will be in charge to dictate the money>>>>hes from Bostons Federal Reserve

  • nader paul kucinich gravel mckinney baldwin ventura sheehan perot carter

    Viva Italia

    born of Napoli
    blood of Sicily Ireland

    corrupt governments will fall

  • Jeff

    Michael,

    The facts that you have quoted, as well as your accurate predictions (so far) have scared the ****** out of me this morning. 2012 is going to be a watershed year for the World.

    • Michael

      Jeff:

      LOL – I hope the article did not freak you out too much.

      Yes, the financial world is heading for a nightmare, but it isn’t going to be the end of the world. :)

      Michael

  • McKinley Morganfield

    I couldn’t agree with you more. The sovereign debt tsunami is nearing the shore. Prepare for a deep global depression to start within the next 6-18 month.

  • mark

    You can’t solve a debt problem with more debt. This is what the world’s leaders are trying to do. Interest rates will go up here as our debt is been out of control for a long time. We should live within our means. I know that this works for me. I have zero debt. A few days ago on Fox Business a gal named Ann Lee stated that our debt is not a problem yet. She felt that since we are the world’s reserve currancy, we could just keep on printing for a while yet. A story in Business Insider this morning about Christina Romer brings up the same garbage about more stimulus. This is what happens when we as a country have created the welfare state. People want the good life without the hard work it takes to create wealth. Well there is no free lunch. Someone has to work inorder to provide the food, the labor to prepare the food and the the labor plus costs to distribute the food. The only ones that that get rich off the system are the bond holders collecting interest until the money runs out and the defaults happens. In the end the bond holders will lose when the system based on debt comes crashing down. Take the time you have left to prepare for collaspe of the coming storm.

  • yhung

    Isn’t it plain now one by one is being taken down for a NWO/one world government to take over? Biblical prophecy is being fulfilled right before our eyes! I don’t think we’ll need to wait another few years for Europe to crash. A middle east war is looming and when it comes it’ll trigger the global crash……

    • D

      It won’t be just a middle east war, it will be WWIII. All of the main players will be involved. We are already in the early stages.

      War: A way to distract the sheeple from the real problems and create gains for the invisible elite who set them up.

  • http://www,Back2theLand.com Old Timer

    Yes, it is time to play: “Break the Bank”, but the slime has, and is still draging its heels that the country in question MUST sell their own bonds to pay the debt. I suppose once it all bursts the banks will just own everything.

    There will be much FEAR passed on to the worker bees and to this end we must remember that life goes on and this crap has been in transition for centuries, no matter who or what is in charge of whatever.

    FEAR numbs the mind and you just vote for more smoke and mirrors-more illusions and lies.

    The interim will be disruptions and to this end stock up… Remember the rule of life: Family first- Bank debts last, if at all.

    Old Timer- http://www.Back2theLand.com

  • SC23

    Another great article.. I was just noticing that Ive been watching here for a while now and it was well before any main media that you were talking about Greece, Italy and Spain.. I expect to hear on the latter in a month or two. Kudos and keep up the good work.

  • patriot alice

    The European leaders knew Italy and the rest of the PIIGS were next, if they truly didn’t have a solution they would not have bailed out Greece…..They will print trillions of Euros and bail out all of them….So stop this panic non-sense… Keeping Europe united is their final goal….We in the USA would do the same, and we have been..The result will be high inflation, higher unemployment, poverty, and much lower currency values, all culminating to the Globalization of world Politics and Economics..We’ve exported our wealth and imported the world’s poverty because the Socialists have never been exposed within our own borders and Europe..

    • 007

      You give them too much credit. Never underestimate the level of government corruption and incompetence. You can bet this euro disaster is unfolding unplanned on a day to day basis.

  • claudio

    Please, help us! We’re drowning! What can we offer? Pizza, mandolino, tiramisù and espresso. Is it ok for you?….if you might need anything else, there’s also some good clothes and useless sport cars; but please, help us. Floods in Genova and 5 terre, river rubbish flowing close to Pozzuoli and Napoli, L’aquila needs to be built again almost 2.5 years later the earthquake that shook the city….please give us some spare change, folks!

    • Milo

      Are you Italian really, like me? You fall on awful and stupid stereotypes: pizza, mandolino, espresso. And Dante, Leonardo, Michelangelo, Galileo, Marconi, Fermi… But maybe you’re really Italian: we are the best to denigrate ourselves.

      P.S. Un pò di dignità patriottica, almeno in presenza di stranieri. Carità di patria, si chiama.

    • El Pollo de Oro

      Ci sono molti americani che hanno molto amore per Italia. È molto triste quello che succede con l’economia italiana e con l’economia di Spagna. Ho paura che sarà una depressione mondiale. Che dio ci aiuti.

      • El Pollo de Oro

        Beh….già c’è una depressione economica mondiale. Ma penso che Gerald Celente ha raggione quando lui dice che questa depressione economica va a peggiorare molto.

  • SMASH THE CONTROL MACHINE

    ALL THE GOLD AT FORT KNOX WONT HELP EUROPE OR US!!!!!OR IS THE GOLD EVEN THEIR??Since the U.S. bucked the gold standard in 1971 and stopped redeeming currency for precious metal, the reserve no longer serves an essential function. Paul and other Republicans have advocated selling it to help ease the nation’s debt burden. At today’s price of $1,500-plus an ounce, its worth about $395 billion—a handsome sum, though barely enough to scratch the $14 trillion debt.

    • Neutron

      Europe don’t need the US and Europe has also a lot of gold.

  • Neutron

    “The EU has been freaking out for quite a while about what to do about tiny little Greece.”

    The EU know exactly what to do and they are prepared to do it : to drop Greece out of the Eurozone.

    But they can’t do it now because Uncle Sam is still protecting his criminal banks and bankers involved in the Greek debt.

    At the end of the day, a Greek default will damage the US more than the EU. Europe will not fall apart because of it, nore will Europe collapse if the European countries go back to their national currencies. The industries and the infrastructures of the first economic zone of the world will still remain.

  • Barn Cat

    They aren’t “brutal austerity measures”. What it means is that everyone who gets handouts will get smaller handouts. And tons of people get handouts. It also means that everyone with a government job will no longer get twice as much in wages and benefits as someone in the private sector. The bigger problem is that all the new taxes will slow down the economy and they’ll cause the government to take in less revenue.

  • David M

    If more world leaders start getting replaced. That might be a good indication that the time is near. Prime Minister Papandreou could have screwed up on purpose with the referendum to get himself damaged enough to make an exit. Dunno enough about Berlusconi.

    I’m sure they will exit without making it seem like they want out.

  • Rick

    Oh I think that the entire financial system could unravel at any time.

  • Milo

    Sorry, I’m Italian, and I have to agree with the article in general. But I can assure that we don’t feel humiliated by the IMF (like London Evening wrote): it’s uninmportant for now (even if we’ll have to change opinion, I think). Nobody talks about this, in Italy: we are too worried about our private wealth, accumulated through years of work but also of tax evasion. In fact, Italy is poor but Italians are rich: the 80% owns the house in which lives, and the private debt of italian families is the lowest of the G7. How is possible? It’s simple: every year Italians evade taxes for 200 € billion (companies and people. Are our politicians dishonest? True. But they don’t come from Mars.

  • Kevin2

    Anyone have a thought what Italy will look like politically this coming summer? Will it be safe to go there?

  • Dan

    Barncat writes: They aren’t “brutal austerity measures”.

    I agree….it is a joke. What is needed is a reawakening of the idea that “if you do not work you do not eat”…qualified by “unless you have family, or friends or Church or community that will VOLUNTARILY help support you.

    In other-words an end to public charity. Americans are very generous people and private and individual charity would keep anyone who is truly helpless from starving.

    As it is today, literally millions of Americans are collecting various benefits taken at figurative gun-point from other Americans, many of whom don’t live much (if any) better than the people on welfare.

    There is little or no oversight and fraud abounds precisely because it is not in the bureaucratic interests to encourage self-reliance and economy…rather bureaucrats job-growth and job security depend on even more “needy clients”.

    Anyone regardless of age, can do SOMETHING productive, so long as they are not paraplegic or severely mentally disabled. Private and personal charity would be much more attentive to scammers.

    Here is a case in point. I was at an ice-machine in the small town I live near, and struck up the usual guy conversation (“what do you do”)with another man that was getting ice.

    The guy was physically fit, had all limbs, was agile and no obvious limps or signs of physical damage. He was coherent and communicated well.

    He told me he HAD been in construction for twenty years, but when the housing bust happened work dried up.

    He had been in the military many years ago, and was involved in a motorcycle accident on the way to work…and was actually hospitalized for a few days.

    A friend of his suggested he check with the Veterans Administration about any benefits he was “entitled” to.

    He was able to get 100% disability, and Social Security Disability totaling #3,700.00/ month (tax free?) and since he owned and had paid off a small house, and Texas give property tax exemption to disabled vets, his only real bills were utilities and food.

    He told me he got a lump sum payment of around $25,000.00 from the VA and SSI and that was how he bought the new pickup he was driving and had also bought a boat.

    He spends his time “hunting, fishing and partying” and that is a direct quote.

    Multiply that story by hundreds of thousands of similar stories in this country.

    By the way, I work construction also…and it is near dead…and I scrape by on about $1,200.00 a month or so lately by working hard and bidding cheap. I drive a 1996 pickup. I stupidly, I suppose, never joined the military.

  • 007

    In the end, the ECB, under emergency authority will monetize all of these countries debt. It will cause massive inflation and the dollar to rise. Oil and gold will dip briefly (good buying opportunity for both).

  • 007

    How much Italy debt did Bernanke buy today? We will know someday but it was a truckload.

  • http://EconomicCollapse Already Gone

    Okay,A Couple Of Politicans Step Down, Big Deal,It Does Not Change Anything,Never Has And Never Will.Two More Will Take There Place And Talk A Tough Fight But In The End They To Will Fail,A Temporary Bandage On A Permanent Wound,Total And Complete Chaos On The Horizon.Dow Loses Almost 400 Points Today,Turkey Has Another EarthQuake, Nome, Alaska Gets There ass Kicked By 80 Mph Winds And Ten Foot Waves,Obama Tries To Add A !5 Cent Tax On Christmas Trees,It Goes On And On,Nothing
    To Look Forward To Except Collapse, So Bring It On, The Sooner The Better.

  • Jeremy

    I do not want to hear one more snarky smartass tell me that Europe is so much more sophisticated, and have it all figured out, than the US.

    We all have been party to the same lies, including China (who underreports their debt).

  • 007

    This was an excellent article. So really nailed what is going on. I do think it is just a matter of time before the ECB starts monetizing all this European debt.

  • comnenus

    The papandrous are like the kennedys of Greece. I doubt we have seen the last of them; after all, George P was born in the United States, when their family had to go to exile to North America after another mishap their big papa had made long time ago.

    And silvio had been the PM of Italy 6 times before; I don’t think we have heard the last of him either.

  • Pandurodjs
  • Pingback: Out Of The Ashes Of The Collapse Of The Eurozone Will A “United States Of Europe” Arise?

  • Steve Mawson

    comnenus – November 10th, 2011 at 11:44 pm -
    “And silvio had been the PM of Italy 6 times before”

    SIR, check your facts, BERLUSCONI has been sworn in as PM 3 times, 1994, 2001, 2008, maybe at a stretch you could say 4 times, counting his vote of confidence win in 2005….

    but 6 times, ye talks through thy butt hole me thinks.

  • Pingback: A Financial Nightmare For Italy: The Yield Curve For Italian Bonds Is Turning Upside Down | Appenheimer

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