What’s in the news today? More of Europe’s attempts to ignore its own breakdown.
Now Papandreou is gone and the Greeks are trying to put together a new coalition government with more credibility. At least, that’s what the newspapers tell us. For our part, we don’t believe the new government will have any more credibility than the old one. Why would it? Papandreou was not a bad egg. He was just in an impossible situation. And that situation hasn’t changed.
“In Greece, the developments are cataclysmic,” said Wolfgang Schauble, German Finance Minister. “Every day it’s a new problem.”
Right. And Greece was yesterday’s problem.
Today, Italy is the problem du jour. Or, perhaps we should say the problem di giorno. Analysts make comparisons and contrasts. Both Italy and Greece have olive trees. Both produce wine. Both have sunny weather and nice beaches. And both have a credibility problem. But only Greece has a real “point of no return” debt problem.
Italy’s debts really aren’t so bad. Yes, it has government debt-to- GDP of 120%. But its household sector has little debt, only 40% of GDP compared to 75% across the Eurozone. This is attributed to the fact that so much of the economy is ‘off-the-books’…cash and carry. When you cash and carry you don’t have much debt. At least, not in Italy. The Italians know how to operate an off-the-books economy…and how to collect debts.
But they don’t collect taxes very well. Cheating on one’s taxes is a point of honor among Italians. After all, they are a very civilized people. They care about their pasta and their bunga-bunga parties. As for taxes, they know tax money is squandered. They prefer to squander it themselves.
Many Italians earn money in ways that never appear on the nation’s accounts. That’s why Italy is probably a much richer country than the numbers suggest. Much of the output is never recorded…and never taxed. You have to admire a people who can do that.
The problem in Italy, say the papers, is that investors have lost faith in the government. It’s not surprising to us. What is amazing to us that they ever had any faith in the government in the first place. Governments are not to be trusted; every thinking person knows that.
Italy has a deficit only half the size of the US deficit. Its problem is that it needs to roll over a quarter of its debt in the next couple of years. That would be no problem — because Italy can afford it — as long as interest rates remain low. But when investors lose faith in the government’s ability or willingness to squeeze taxpayers on their behalf…things begin to fall apart. Last time we looked, Italian 10-year bonds were yielding 6.66%. That has a sinister sound to it. And it has a deadly look about it.
The Financial Times says Italy is in the “danger zone.” Silvio Berlusconi vows to “fight on”…but it looks like the war may be already lost.
But who knows? Every day is a new problem. And exactly the same old problem. The world has too much debt. All the sturm and drang in Europe…as in America…is really about who pays it, how, and when.
Yesterday, the Dow rose 85 points. Gold jumped $35.
Turning our attention to politics, we see that Mitt Romney is running neck-and-neck with Herman Cain in Republican polls in Iowa. But from what we read, the pundits seem to have already decided: Romney will be the Republicans’ man.
Why? He’s more “electable,” they say. They’re probably right. Cain is a wild card. As near as we can tell, he is an interesting, energetic fellow. He has ideas and an open mind. He has a sense of humor. He’s even refreshingly candid and direct. Obviously, he has no place in politics.
But Romney knows how the game is played. The party hacks, lobbyists, strategists, the pentagon, the health care industry, the education establishment and the media are more comfortable with him. They think they can depend on him. When he’s been bought, he’ll stay bought.
*** Remember our report from yesterday: “Generation Jobless” was how The Wall Street Journal put it. Here’s more. From the blog “Economic Collapse:”
19 Statistics About The Poor That Will Absolutely Astound You.
#1 According to the US Census Bureau, the percentage of “very poor” rose in 300 out of the 360 largest metropolitan areas during 2010.
#2 Last year, 2.6 million more Americans descended into poverty. That was the largest increase that we have seen since the US government began keeping statistics on this back in 1959.
#3 It isn’t just the ranks of the “very poor” that are rising. The number of those just considered to be “poor” is rapidly increasing as well. Back in the year 2000, 11.3% of all Americans were living in poverty. Today, 15.1% of all Americans are living in poverty.
#4 The poverty rate for children living in the United States increased to 22% in 2010.
#5 There are 314 counties in the United States where at least 30% of the children are facing food insecurity.
#6 In Washington DC, the “child food insecurity rate” is 32.3%.
#7 More than 20 million US children rely on school meal programs to keep from going hungry.
#8 One out of every six elderly Americans now lives below the federal poverty line.
#9 Today, there are over 45 million Americans on food stamps.
#10 According to The Wall Street Journal, nearly 15 percent of all Americans are now on food stamps.
#11 In 2010, 42 percent of all single mothers in the United States were on food stamps.
#12 The number of Americans on food stamps has increased 74% since 2007.
#13 We are told that the economy is recovering, but the number of Americans on food stamps has grown by another 8 percent over the past year.
#14 Right now, one out of every four American children is on food stamps.
#15 It is being projected that approximately 50 percent of all US children will be on food stamps at some point in their lives before they reach the age of 18.
#16 More than 50 million Americans are now on Medicaid. Back in 1965, only one out of every 50 Americans was on Medicaid. Today, approximately one out of every 6 Americans is on Medicaid.
#17 One out of every six Americans is now enrolled in at least one government anti-poverty program.
#18 The number of Americans that are going to food pantries and soup kitchens has increased by 46% since 2006.
#19 It is estimated that up to half a million children may currently be homeless in the United States.
Now, dear reader, we ask ourselves: how could the most sophisticated, most dynamic, best capitalized, high tech enhanced capitalism in history produce such an outcome?
The answer is simple: capitalism doesn’t give you what you want. It gives you what you deserve. And it usually does so with such a long delay that few people connect cause with effect.
Instead, they rant and rave. They blame the rich. They call for more regulation. More distribution. More handouts, subsidies, and bailouts.
They demand that the feds ‘do something!’…not realizing that the feds — more than anyone else — are responsible for their misery:
The feds tricked them into spending more than they could afford — with artificially low rates and EZ credit.
The feds loaded them up with mortgage debt — thanks to their federally subsidized mortgage industry.
The feds practically invented sub-prime mortgage debt; and directed lenders towards the poorest and most vulnerable parts of the society.
The feds enticed old people into complete dependence — with the Social Security, Medicaid and Medicare programs.
The feds led the young into debt too — with easy student loans that effectively transferred money from them to the education industry.
The feds jimmied the health system into such a mess that Americans now spend 45 times as much as Cubans…and have the same life expectancy.
The feds’ funny money system caused the export of millions of good jobs to emerging markets.
Rise up, ye debt-trodden masses! Rise up against your real enemy: the feds. You have nothing to lose but your chains
for The Daily Reckoning Australia