10 Signs That The 8th Largest Economy In The World Is Being Overwhelmed By A Tsunami Of Debt

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Guess who is going to need a bailout right after Spain?  The Italian economy is the 8th largest economy on the entire planet and right now it is being absolutely overwhelmed by a tsunami of debt.  In an attempt to address this problem, Italy is going down the exact same path that Greece, Portugal and Spain have gone.  And so far, we are seeing the exact same results that we have seen in those other countries.  Austerity causes economic growth to slow down, and that causes unemployment to soar.  When unemployment rises, tax revenues go down and you end up missing your original deficit reduction targets so you have to implement even more austerity measures.  It is a vicious cycle that we have seen play out again and again in Greece over the past five years.  But unlike Greece, Italy is way too large to be completely bailed out.  The truth is that there are only 7 economies on the entire globe that are larger than the Italian economy.  Plus, keep in mind that the 12th largest economy in the world, Spain, is also on the verge of formally requesting a bailout.  So needless to say, Europe is rapidly approaching a moment of reckoning.

Just like in Greece, Portugal and Spain, the situation in Italy continues to deteriorate.

If Italy continues to go down the path that Greece has gone, Italy will soon find itself in the middle of a rip-roaring depression.

Sadly, at this point it is hard to imagine any way that outcome is going to be averted.

The following are 10 signs that the 8th largest economy in the world is being overwhelmed by a tsunami of debt….

#1 Italy’s public debt has reached an all-time high of 1.973 trillion euros, and Italy now has a debt to GDP ratio of 123 percent.

#2 Despite all of the austerity measures that have been implemented, the Italian government had a budget deficit during the first half of this year that was more than a billion dollars larger than the budget deficit during the same period last year.

#3 The Italian economy contacted by 0.7 percent during the second quarter.

#4 Overall, the Italian economy has shrunk a total of 2.5 percent over the past 12 months.

#5 The unemployment rate in Italy rose to 10.8 percent in June.

#6 The number of unemployed workers in Italy is more than 37 percent higher than it was last year.

#7 Despite a tremendous amount of intervention by the European Central Bank, the yield on 10 year Italian bonds remains up around 6 percent.

#8 Even though Italy has implemented a vast array of austerity measures, the debt of the Italian government continues to explode.  The following is from a recent Zero Hedge article….

What is perhaps most stunning, given all the talk of austerity, cutting back, reforms, and change is that the size of this debt is growing at an ever-increasing pace that is simply stunning. Pre-Euro (1999), Italy’s debt was growing at a rate of just less than EUR 2 billion per month; in the eight years from then until the crisis in 2008, Italy’s pace of debt growth (fostered we are sure by the convergent cheapness of funding and their immutable belief in invincibility) almost perfectly doubled to EUR 3.8bn per month. Since 2008, and the onset of excess Keynesian ridicule we assume, Italy’s debt load has grown at a stunning pace of EUR 6.4 billion per month and perhaps most incredible; however, the last nine-months (since the peak ‘peak’ of the crisis in September of last year) has seen the pace of debt-load growth surge to EUR 9.5 billion per month.

#9 According to RT, the Italian government and local governments around Italy plan to sell off hundreds of historic buildings in a desperate effort to raise cash….

The city of Venice is going to sell 18 properties, including the 18th century Diedo Palace, which served as a criminal court for years. The price tag for the palace is 19 million euro. Milan intends to sell more than 100 buildings, including the Palazzo Bolis Gualdo. The city hopes to get as much as 31 million euro for that palace.

#10 The national government of Italy is not the only one that is drowning in debt.  All over Italy, local governments are experiencing major debt problems as well.  In fact, the other day came a warning that ten large Italian cities are now on the verge of bankruptcy….

The cities at risk of running out of money include Naples, Palermo in Sicily and Reggio Calabria, on the toe of the Italian boot, according to the Italian press.

“The situation is becoming worse by the day,” said Graziano Del Rio, the president of a national association of municipal councils.

The warning came just days after Mario Monti, the prime minister, expressed fears that Sicily, which has a high degree of fiscal autonomy, was on the brink of a default.

At this point many in the financial community have completely written off southern Europe.   Financial capital is absolutely flying out of countries such as Greece, Spain and Italy right now.

So what is next for Spain and Italy?

You can look at what is still unfolding in Greece for some clues.

The Greek economy is experiencing a full-blown depression at the moment.  The Greek economy contracted at a 6.2 percent annual rate in the second quarter, and the unemployment rate is now over 23 percent.

Greece has implemented wave after wave of austerity measures, and yet the rest of Europe keeps demanding even more from Greece.

According to Reuters, Germany is now threatening to cut off aid to Greece if Greece does not strictly adhere to the conditions that have been imposed upon them….

A senior member of Chancellor Angela Merkel’s party issued a stark warning to Greece on Monday, saying Germany would not hesitate to veto further aid to the country if there were any signs it was not meeting the conditions of its bailout.

The comments, by the deputy parliamentary leader of Merkel’s Christian Democrats (CDU) Michael Fuchs, are a sign that frustration with Greece among ruling party lawmakers is nearing the breaking point.

So is that where Spain and Italy are headed?

Or will the eurozone simply implode and break up at some point?

As I have written about previously, the only way out of this mess for Spain and Italy in the long run is for Germany to allow the European Central Bank to print up trillions of new euros and use those euros to buy up massive amounts of Spanish and Italian debt.

But there is a tremendous amount of resistance to this idea in northern Europe.

First of all, many northern Europeans find the idea that they should experience rampant inflation just so that Spain and Italy can borrow lots more money very cheaply extremely repulsive.

Secondly, if the ECB is going to start essentially monetizing the debt of Spain and Italy then the ECB will eventually have to start doing it for everyone.

The head of Belgium’s central bank says that it makes “no sense” for the ECB to buy up Spanish and Italian debt, and there are a whole host of other politicians in northern Europe that feel the exact same way.

But if Italy and Spain are allowed to fail, it is going to have a catastrophic impact on the entire global financial system.

Financial journalist Ambrose Evans-Pritchard recently described what he believes may happen if Italy and Spain are permitted to collapse….

Failure to halt a full-blown debt debacle in Spain and Italy at this delicate juncture – with China, India and Brazil by now in the grip of a broken credit cycle and the US on the cusp of fresh recession even before the “fiscal cliff” hits – would tip the entire global system into a downward spin, triggering the sort of feedback loop that caused such havoc in late 2008.

So what comes next?

Well, on September 12th the Constitutional Court in Germany is expected to issue a ruling on whether the ESM and the recent fiscal treaty are legal under the German constitution.

If the court rules that they are not, all hell is going to break loose.

If the court rules in favor of the ESM and the fiscal treaty, it will just delay the inevitable collapse for a little while.

Either way, Europe is heading for a massive amount of pain.

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  • marK

    It is not just Italy with a debt problem. Most of Europe,China,US, Canada, Japan you name a country and in most cases they are in debt up to their eyeballs. This debt can’t be paid back without taking the taxpayers and turning them into serfs. I refuse to be some rich persons serf.

  • Mal R

    “I refuse to be some rich persons serf.”

    You are aware that no person without first being a member of the govt has ANY power whatsoever to tax and make you a serf.

    Sure, most of the people running the country are rich (due to their corruption), but being rich provides NO ONE the power to make you a serf. However, ANY MAN, rich or poor that votes for those that want to perpetually raise taxes is voting to make you a serf. Last time I checked, some rich person probably provided you a job and income that up front keeps you from being a serf. Check your ideology pal – that is probably making you a serf.

    • Gary2

      Mal I see you found your way to this site to infect it with your craziness. How sad.

      • Mal R

        Ya, and imagine that, I did it without a govt program. Someone has to stand up to your easily refutable lies and stupidity.

        I’m sorry, did you disagree with something? Weren’t you going to post me some proof how a US corporation has the power to make you their b!tch? Or did you just forget to tell us all how mittens murdered some dude’s poor wife with cancer.

    • Gary2

      Mal–you are like a bad case of acne–squeeze one zit and another pops up somewhere else, probably on your ass.

      • Mal R

        Maybe, and I know you’re desperate to check it out, but no thanks that’s what I have your mother for.

        • Rodster

          LOL 😆

    • marK

      Mal R, I suppose we should define what is meant by a rich person as it relates to serfdom. In truth maybe I should not have used the word rich as many would consider me as rich. Many have lost their moral compass when it comes to investing and have demanded the highest profits in the shortest amount of time. To make money each year is not enough any longer. To hell with our economy and social structure in the US. Many investers demand that that corporations turn to slave labor overseas that our middle class can’t compete with and in turn have trashed our economy. The central banks prop up corrupt bankers that make the same demands on their investments. They do this at mine and your expense as taxpayers and consumers. The government pays interest to many of the banks that receive cheap money from the Fed and then buy bonds which we serfs pay the interest with our tax dollars. There will soon come a day when most of the tax money collected will go towards paying interest to the bondholders. Bonds will not be a safe investment in the future unless you are connected to those that hold power. Look what happened to the GM bond holders after Obama stole from them and gave to his union buddies. At some point and not with the power of the government, investers need to think not how they can make a quick buck and look at the long term profit oif themselves and the social economy around them. If they choose to make the most the fastest by exporting jobs for cheaper labor they are killing the middle class that buys their product. As an invester you have to ask your self when is enough enough. That is the moral question that as a free market person you need to have some self control over greed. To be truly free you have to regulate yourself and not have the government do it for us. That is freedom to choose what kind of person you wish to be. As I stated I will not become a serf to a corrupt greedy control freak that wants to send us down the road to serfdom so that they can have lavish government pensions or live off the tax payer by collecting interest on bonds for money that we can print ourselves. At least we would only have to suffer the effects of the printing vs. the interest added to the pain from inflation. Better yet, let’s have sound money and a better set of moral values towards our fellow men on our own accord.

  • Mal R

    When you put it like that, I don’t disagree a whole bunch, but my point still stands. It wouldn’t have happened without the express consent of the scmucks in govt.

    My only quibble is that I’ve never heard of an investor ‘demand that that corporations turn to slave labor overseas that our middle class can’t compete with”
    outside of the globalist union movements of Andy Stern and Richard Trumpka. They’re the ones (of course, again aided and abetted by the Bamster in govt) calling for ‘workers of the world unite. Its not just a slogan, its how we are going to have to do business’.

    I was struck recently when I read a story about Apple’s new Ipod or IPhone or whatever stupid gadget. The story talked about the workers in China being forced out of bed in the middle of the night from their locked/fenced in dormitories over the factory and being forced to work. Below average people like the leftists on this board dont think about that stuff long enough to formulate an accurate judgement, let alone realize that their masters are going to do the same thing to them once the system becomes too unstable.

    Sure, the investor is wholely being lied to by the leftist media (aided and abetted by leftists in govt), but I have to believe if they were given the truth it would be a little different.

    Good post 🙂

    “To be truly free you have to regulate yourself “

    • Gary2

      mal you just worm your way into everything. Stop drinking your bath water.

      • marK

        Hey Gary2, why don’t you give it a break. You need to quit wasting electric power on your posts.

      • Mal R

        Gary, Conservatives dont worm our way into anything. We like to win people over with facts and logic. democrats however…. stop drinking kool aid.

    • Gay Veteran

      leftist media?


      you mean the corporate media

      • Mal R

        Who are you trying to fool, me or yourself?

        • Gay Veteran

          LOL, guess you didn’t know that NBC is partially owned by that well known liberal corporation General Electric

          game, set, match

  • A Dodgy Bloke

    I’m afraid Mark is right about the level of debt, and none of it is going to be paid back. As soon as the markets realize that game over, this will be a global issue. I don’t think Europe will survive as it is, what will happen to Japan and the United States God only knows. I know China is being strip mined Carl Denninger wrote a ticker about an interview done by the CEO of Adidas saying that China produces 50% of thier shoes but that will change as wages rises. Adidas is not the only company saying that so the China will save us Brigade is going to be disappointed. Link below titled under Swarm of Locusts.


  • dave

    ” the only way out of this mess for Spain and Italy in the long run is for Germany to allow the European Central Bank to print up trillions of new euros and use those euros to buy up massive amounts of Spanish and Italian debt.”

    No. 90% of this debt was printed by banks who were allowed to print money they did not have and Iceland surely is showing the way to deal with that – the banks and their owners will not be paid by the common goyim.
    I have followed your sites and am worried that you wrote those words. Are you a part of the plan ?
    With kind regards

  • mal seems to have a lot of venom for opposing views.