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 Is the financial collapse of Italy going to be the final blow that breaks the back of Europe financially? Most people don't realize this, but Italy is actually the third largest debtor in the entire world after the United States and Japan. Italy currently has a debt to GDP ratio of more than 120 percent, and Italy has a bigger national debt than anyone else in Europe does. That is why it is such a big deal that Italian voters have just overwhelmingly rejected austerity. The political parties led by anti-austerity candidates Silvio Berlusconi and Beppe Grillo did far better than anticipated. When you combine their totals, they got more than 50 percent of the vote. Italian voters have seen what austerity has done to Greece and Spain and they want no part of it. Unfortunately for Italian voters, it has been the promise of austerity that has kept the Italian financial system stable in recent months. Now that Italian voters have clearly rejected austerity, investors are fearing that austerity programs all over Europe may start falling apart. This is creating quite a bit of panic in European financial markets right now. On Tuesday, Italian stocks had their worst day in 10 months, Italian bond yields rose by the most that we have seen in 19 months, and the stocks of the two largest banks in Italy both fell by more than 8 percent. Italy is already experiencing its fourth recession since 2001, and unemployment has been steadily rising. If Italy is now "ungovernable", as many are saying, then what does that mean for the future of Italy? Will Italy be the spark that sets off financial armageddon in Europe? (Read More....)
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 Where have we seen this before? Bond yields soar above the 7 percent danger level. Check. The stock market crashes to new lows. Check. Industrial activity plummets like a rock and the economy contracts. Check. The unemployment rate skyrockets to more than 20 percent. Check. The bursting of a massive real estate bubble pushes the banking system to the brink of implosion. Check. Broke local governments beg the broke national government for bailouts. Check. The international community pressures the national government to implement deep austerity measures which will slow down the economy even more and hordes of violent protesters take to the streets. Check. All of this happened in Greece, it is happening right now in Spain, and mark my words it will eventually happen in the United States. Every debt bubble eventually bursts, and right now Spain is experiencing a level of economic pain that very, very few people saw coming. The recession in Spain is rapidly becoming a full-blown economic depression, and at this point there is no hope and no light at the end of the tunnel. (Read More....)
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 With each passing day, the banking crisis in Europe escalates. European banks are having their credit ratings downgraded in waves, bond yields are soaring and billions of euros are being pulled out of banks all across the eurozone. The situation in Europe is rapidly going from bad to worse. It is almost like watching air being let out of a balloon. The key to any financial system is confidence, and right now confidence in banks in Greece, Italy, Spain and Portugal is declining at an alarming rate. When things hit the fan in Europe, it is going to be much safer to have your money in Swiss banks or German banks than in Greek banks, Spanish banks or Italian banks. Millions of people in Europe are starting to realize that a "euro" is not necessarily always going to be a "euro" and they are starting to panic. The Greek banking system is already on the verge of total collapse, and at this rate it is only a matter of time before we see some major Spanish and Italian banks start to fail. In fact it has already been announced that the fourth largest bank in Spain, Bankia, will be getting bailed out by the Spanish government. It is only a matter of time before we hear more announcements like this. Right now, events are moving so quickly in Europe that it is hard to keep up with them all. But this is what usually happens in the financial world. When things go well, it tends to happen over an extended period of time. When things fall apart, it tends to happen very rapidly. (Read More....)
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 What was considered unthinkable a few months ago has now become probable. All over the globe there are headlines proclaiming that a Greek exit from the euro is now a real possibility. In fact, some of those headlines make it sound like it is practically inevitable. For example, Der Spiegel ran a front page story the other day with the following startling headline: "Acropolis, Adieu! Why Greece must leave the euro". Many are saying that the euro will be stronger without Greece. They are saying things such as "a chain is only as strong as its weakest link" and they are claiming that financial markets are now far more prepared for a "Grexit" than they would have been two years ago. But the truth is that it really is naive to think that a Greek exit from the euro can be "managed" and that business will go on as usual afterwards. If Greece leaves the euro it will set a very dangerous precedent. The moment Greece exits the euro, investors all over the globe will be asking the following question: "Who is next?" Portugal, Italy and Spain would all see bond yields soar and they would all likely experience runs on their banks. It would only be a matter of time before more eurozone members would leave. In the end, the whole monetary union experiment would crumble. (Read More....)
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 The recent elections in France and in Greece have thrown the global financial system into an uproar. Fear and worry are everywhere and nobody is quite sure what is going to happen next. All of the financial deals that Greece has made over the past few years may be null and void. Nobody is going to know for sure until a new government is formed, and at this point it looks like that is not going to happen and that there will need to be new elections in June. All of the financial deals that France has made over the past few years may be null and void as well. New French President Francois Hollande seems determined to take France on a path away from austerity. But can France really afford to keep spending money that it does not have? France has already lost its AAA credit rating and French bond yields have started to move up toward dangerous territory. And Greek politicians are delusional if they think they have any other choice other than austerity. Without European bailout money (which they won't get if they don't honor their current agreements), nobody is going to want to lend Greece a dime. (Read More....)
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 The results of the elections in France and Greece have made it abundantly clear that there is a tremendous backlash against the austerity approach that Germany has been pushing. All over Europe, prominent politicians and incumbent political parties are being voted out. In fact, Nicolas Sarkozy has become the 11th leader of a European nation to be defeated in an election since 2008. We have seen governments fall in the Netherlands, the UK, Spain, Ireland, Italy, Portugal and Greece. Whenever they get a chance, the citizens of Europe are using the ballot box to send a message that they do not like what is going on. It turns out that austerity is extremely unpopular. But if newly elected politicians all over Europe begin rejecting austerity, this puts Germany in a very difficult position. Should Germany be expected to indefinitely bail out all of the members of the eurozone that choose to live way beyond their means? If Germany pulled out of the euro tomorrow, the euro would absolutely collapse, bond yields for the rest of the eurozone would skyrocket to unprecedented heights, and without German bailout money troubled nations such as Greece would be headed directly for default. The rest of the eurozone is absolutely and completely dependent on Germany at this point. But as we have seen, much of the rest of the eurozone is sick and tired of taking orders from Germany and is rejecting austerity. A lot of politicians in Europe apparently believe that they should be able to run up gigantic amounts of debt indefinitely and that the Germans should be expected to always be there to bail them out whenever they need it. Will the Germans be willing to tolerate such a situation, or will they simply pick up their ball and go home at some point? (Read More....)
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 I have learned that watching what people do is much more important than listening to what they say. Back in 2008, financial authorities in the United States insisted that everything was gone to be okay. But we all know now that was a lie. Well, right now financial authorities in the U.S. and Europe are once again trying to assure us that everything is under control and that we are not headed for a global recession. Unfortunately, their actions are telling a very different story. All over the world, bailouts are flying around as if the end of the world is coming. Governments and central banks are stepping in with gigantic mountains of money to prop up bond yields, major banks and even stock markets. What we have seen over the past few months has been absolutely unprecedented. So why are such desperate measures being taken if everything is going to be just fine? Unfortunately, debt problems are never solved with more debt, so these bailouts really aren't solving anything. We are still headed for a massive amount of financial pain. It would just be nice if the authorities would quit lying to us and would actually admit how bad things really are. (Read More....)
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