We are all Greeks now Part II

Divinely comical

by DETLEV SCHLICHTER

“Italy, long a bystander to the euro-zone’s debt woes, was thrust into the eye of the storm on Monday, as investors fled the country’s bonds and Europe’s leaders struggled to keep the crisis from infecting the Continent’s third-largest economy.”

Thus reports the Wall Street Journal Europe this morning. What?, I was thinking. Bystander? Investors fleeing the country? –-  Was anybody still holding Italian bonds?

That Italy was next in line was so obvious, how can anybody truly be surprised? What were you thinking, sitting on a pile of Italian debt while watching Greek bonds slide into the Aegean Sea? This has been talked about for more than a year, for chrissake!

On CNBC yesterday, PIMCO’s Mohamed El Erian said that Italy was not like Greece, Ireland, or Portugal. Better maturity profile, yes, and more debt held by domestic investors. Ah, very clever.

Well, could it be that you are over-analyzing the issue, Mohamed? – I am all for keeping it simple: Italy will not repay its debt, neither will Spain, France or Germany for that matter.

The question is not if Italy is in better shape than Greece but whether it is in good enough shape.

Almost all states are meeting their present obligations by borrowing more. They are servicing their debt by accumulating more debt.

This is not a healthy strategy. It relies crucially on the willingness of your creditors to keep funding an EVER-growing debt pile. Maybe that is asking a bit too much. In any case, lenders are having a re-think right now.

Remember: on a long enough time-line, everywhere is Greece.

Oh, please, you cannot be surprised!

Hey, bond investors, why not be a step ahead of the curve for a change and sell some Bunds? The German government is also heading for fiscal trouble – it is just a question of time. Either Germany has to bail out everybody else in Europe and goes broke that way, or the other European governments finally do the honest and manly thing – don’t count on it!- and default, in which case Germany has to bail out its bankers who for years have been happily handing their funds over to Greek and Italian politicians for a few basis points more in spreads, financial geniuses that they are.

So who is thinking that Bunds are a safe haven? Well, probably the same guys who thought that Italy would be safe. Better maturity profile.

Sorry if I am quoting myself – and Oscar Wilde – but you got to have a heart of stone not to be crying with laughter at the plight of the euro-elite and their grand design built on cheap money and ever more debt.

Two weeks ago, the Financial Times reported that Greek savers were lining up to buy physical gold. I am sure in a few weeks from now we hear the same from Italy. This is still a sensible strategy, in my view – and not just for Greeks and Italians. The governments are bust, the banks are bust – and the major risk is that in their desperation the Eurocrats will use the printing press to buy some time.

Will the ECB be a push-over? – Of course!

Read the rest at http://papermoneycollapse.com/2011/07/divinely-comical/