Italy Bond Yields Spike, Bankruptcy Looms

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Italian bond yields have spiked today, as of now we're at about 7.4% and there is no end in sight.

A live chart:

http://www.bloomberg.com/quote/GBTPGR10:IND/chart

Solution: ECB prints money, mass asset purchase scheme, brings yields down. The problem with this is that it socialises banking failures in France and is seriously morally hazardous.

Other outcome: Eurozone fails some time this week and it all comes crashing down and causes a short sharp worldwide recession as the EU consumer market falls through the floor.

Other, other outcome: France, Spain, Italy, Greece and Portugal leave the Eurozone. There is no real precedent for this, the closest one is when Britain fell out of the ERM and that was pretty shocking over here.
 
Certainly a worrying development to say the least :/.
I wonder what the European political and economic landscape will look like by the end of the year. I certainly doubt the European leaders will have the resolve to take any drastic action, so the other outcome is looking incredibly likely right now.
 
Why is the world so depressing right now? Can't everyone just have a nice friendly agreement where everyone agrees that whatever debts they owe are void and anyone who is owed money agrees to let it go? Sure, some people will be screwed but it has to be better than what's currently happening.

/wishful thinking and woeful economic knowledge
 
Yields are going up now because institutional investors are obliged to sell assets that exceed a certain level of risk. I guess there's also a bit of shorting going on by people looking for quick profits. It's basically a downward spiral.

One thing I don't understand about bonds is that the yield changes today only reflect the price of existing bonds being bought and sold on the open market. But it surely doesn't affect Italy until she needs to issue new bonds. Might not the yields have gone down again by then?

Regardless things are getting pretty bleak. Italy defaulting would be catastrophic in terms of the knock on effect on other countries, but it seems to be impossible to build up sufficient capital to bail her out, and the only other solution is for the ECB to begin printing money but I believe it is against German law to sanction this. We are entering a world of pain, and nobody seems to have any answers.
 
killer_clank said:
Why is the world so depressing right now? Can't everyone just have a nice friendly agreement where everyone agrees that whatever debts they owe are void and anyone who is owed money agrees to let it go? Sure, some people will be screwed but it has to be better than what's currently happening.

/wishful thinking and woeful economic knowledge

If that happened on a personal level, I would kill somebody. Years saving, making sacrifices so I can buy my own place, and other reckless people mortgage's void and that's it? Hell no.
 
So is it likely that Italy will need a Greek type bailout?

The whole Eurozone situation looks very serious. Are we approaching the tipping point where it's unrecoverable?
 
The Northern States will leave the Eurozone soon. There's no chance in hell they'll fork over the 3 trillion needed to 'save' Italy. After that Spain, Portugal, France.... ? They were pretty close to pulling the plug over Greece this is much more severe. They're better off using the money set aside for the ESFF and Greece to recapitalze their own banks if the need arises. Buckle up and leave the Euro is my advice or create a 'United States of Europe' by years end but there's no political will to do so. It's a shame that the EU turned into such a mess but I blame us Europeans for not caring enough about what happens in Brussels so useless shits like Barrosso and van Rompuy run the show there.
 
killer_clank said:
Why is the world so depressing right now? Can't everyone just have a nice friendly agreement where everyone agrees that whatever debts they owe are void and anyone who is owed money agrees to let it go? Sure, some people will be screwed but it has to be better than what's currently happening.

/wishful thinking and woeful economic knowledge

The world is like this because politicians and big businessmen are two things, they are greedy, and they are cowards. Nobody wanted to stop the gravy train before it came off the rails, and nobody wants to admit they were driving it.
 
Ushojax said:
The world is like this because politicians and big businessmen are two things, they are greedy, and they are cowards. Nobody wanted to stop the gravy train before it came off the rails, and nobody wants to admit they were driving it.
And the best part? They walk away with all their money while the public gets left holding a bag of shit.
 
I'm thinking again of changing my euros to a foreign currency, just to change it back to pesetas after Spain goes back and devaluates it.
 
Ushojax said:
The world is like this because politicians and big businessmen are two things, they are greedy, and they are cowards. Nobody wanted to stop the gravy train before it came off the rails, and nobody wants to admit they were driving it.

You're giving both politicians and businessmen too much credit. When most economists and financial experts were surprised by the collapse, you can't expect politicians and businessmen to have had any idea what was going to happen.
 
Adam Blade said:
So what happens when the Eurozone fails?
We bring the rest of the world down in flames.

Happy days!

Edit: I've been saving for years for a place of my own and I have a serious bunch of cash sitting on my bank. I honestly don't know if I should change it to a different currency.
 
Funky Papa said:
We bring the rest of the world down in flames.

Happy days!

Edit: I've been saving for years for a place of my own and I have a serious bunch of cash sitting on my bank. I honestly don't know if I should change it to a different currency.

Heh. I've got the same "problem". I don't want my saving to go up in smoke when the Euro hits rock bottom.
 
I'm hoping this stuff doesn't cause too much chaos in the US. the last thing we need is another recession, though it's effects on the US will be unpredctable, as this may be the first time in history when the public doesn't blame the president for the economic mess.

This stuff is truly worrying, France can't do anything without Germany, and Germany is the real problem.

If I was Obama, I'd use whatever leverage I have on Germany, even if it means pulling our bases. (we may need the defense cuts)
 
cyberheater said:
So is it likely that Italy will need a Greek type bailout?

In terms of bond yields, Italy's passed the point where Portugal/Greece/Ireland were pressured to get bailouts. They all had to get bailouts when yields hit 7%.

The problem with Italy is that it's a much bigger economy than any of the above - the third largest in Europe, I think? It may not be feasible to bail it out.
 
gofreak said:
In terms of bond yields, Italy's passed the point where Portugal/Greece/Ireland were pressured to get bailouts. They all had to get bailouts when yields hit 7%.

The problem with Italy is that it's a much bigger economy than any of the above - the third largest in Europe, I think? It may not be feasible to bail it out.
Third in the Eurozone (Germany, Russia, UK and France are bigger in Europe as a whole)
 
I have 20% of my savings in cash (SEK), 5% in a chinese fund and the rest invested in corporations listed at the stockholm stock exchange. Short term advice? Long term?

I seriously don't know what to do atm.
 
I put all of my money into emerging market overseas assets, as I made a 30-yr bet that foreign profits would exceed US profits over 30 years.

I still stand by that bet, I just hope my 401k investors didn't consider Italy/Greece emerging markets.

And yes I know Contagion will hit China hard.
 
Time to visit these broke ass country's and live like a king of some petty British change.
 
cyberheater said:
So is it likely that Italy will need a Greek type bailout?

The whole Eurozone situation looks very serious. Are we approaching the tipping point where it's unrecoverable?

I think unlike Greece which they had no plan to save just sell in pieces the scum will make an honest attempt to save Italy because if Italy falls it's all over for them. The greed of the markets though will supersede their honest attempt and they'll fail. Capitalists prefer to eat each other so that the last one is saved than work together to save everyone.
 
That's pretty much it for the Eurozone. Whoever created this idea (to unify the currency before unifying all the economies) should be kicked in the nuts, 10 years ago.
 
fortified_concept said:
I think unlike Greece which they had no plan to save just sell in pieces the scum will make an honest attempt to save Italy because if Italy falls it's all over for them. The greed of the markets though will supersede their honest attempt and they'll fail. Capitalists prefer to eat each other so that the last one is saved than work together to save everyone.

At what point do we put our collective hands up and state that debt based capitalism has failed. Let it all fail. Start again with not for profit social banks and stop this madness.
 
cyberheater said:
At what point do we put our collective hands up and state that debt based capitalism has failed.

When there's only 10 or so collective hands left.
 
I think we are entering some dark times, people. I know it's been bleak since 2008 but I think it's going to get a lot worse before it gets better.
 
ElTopo said:
Care to elaborate ? Because it's not as if France has been more helpful.

(Don't get me wrong - we are a problem, I just don't see how we're the real problem in all of this, given how all nations seem to be eager to save their own asses.)



I don't see how they could bail out Italy to be honest. That country's too large for that and quite frankly I'm not even sure how politicians would explain such a move to their citizens.

The Germans have been reluctant to do bailouts, because they've been super-scared on inflation. The French are more willing to deal.

Ghosts of the Weimar Republic and how hyperinflation led to the rise of radicalism in 1930's Germany are my guess for the reason of the German fear of hyperinflation.
 
[Nintex] said:
The Northern States will leave the Eurozone soon. There's no chance in hell they'll fork over the 3 trillion needed to 'save' Italy. After that Spain, Portugal, France.... ? They were pretty close to pulling the plug over Greece this is much more severe. They're better off using the money set aside for the ESFF and Greece to recapitalze their own banks if the need arises. Buckle up and leave the Euro is my advice or create a 'United States of Europe' by years end but there's no political will to do so. It's a shame that the EU turned into such a mess but I blame us Europeans for not caring enough about what happens in Brussels so useless shits like Barrosso and van Rompuy run the show there.

Er, Van Rompuy has no executive powers so all he can do is try to find consensus between national governments, who run the real show, especially the ones with the deepest pockets. Barrosso is a different story.
 
All these problems in the Eurozone were foreseen but shouted down.

A country like Germany having the same interest rate as Greece was a disaster waiting to happen everyone knew it was but the politicians thought a) it would be someone else's problem and b) that they'd figure it out as they went along.

We've had property bubble growth burst in the past but sovereign debt ones? yikes!

Europe has been living a debt fueled dream the last decade and it's citizen's living standards are in for a shock.
 
killer_clank said:
Why is the world so depressing right now? Can't everyone just have a nice friendly agreement where everyone agrees that whatever debts they owe are void and anyone who is owed money agrees to let it go? Sure, some people will be screwed but it has to be better than what's currently happening.

/wishful thinking and woeful economic knowledge

what? so you want ppl who loan money to do stupid things to have their debt forgiven?
 
Rourkey said:
All these problems in the Eurozone were foreseen but shouted down.

A country like Germany having the same interest rate as Greece was a disaster waiting to happen everyone knew it was but the politicians thought a) it would be someone else's problem and b) that they'd figure it out as they went along.

We've had property bubble growth burst in the past but sovereign debt ones? yikes!

Europe has been living a debt fueled dream the last decade and it's citizen's living standards are in for a shock.

Shut up you racist little Englander!

couldn't help it
 
Withnail said:
One thing I don't understand about bonds is that the yield changes today only reflect the price of existing bonds being bought and sold on the open market. But it surely doesn't affect Italy until she needs to issue new bonds. Might not the yields have gone down again by then?
Yes, this spike in yield represents a loss for whoever owns Italian bonds (i.e., banks, private funds, and ECB), not Italy - until Italy needs to issue new bonds. That's why a proper stability fund is so necessary - in case of panic, we need to have a mechanism that allows countries to get their shit together.

The problem is:
-no one in Europe wants to risk lending money to the weakest link, because they would have all the burden in case of default
-some countries are unable to get their shit together

So... Europe is fucked, because we don't believe in Europe. It was a great dream, brought down by reality...
 
Tideas said:
what? so you want ppl who loan money to do stupid things to have their debt forgiven?

Moral hazard is a concern- but Argentina and Iceland, the two countries who have had the most high-profile sovereign defaults recently, have had to largely balance their books and had it hard- Argentina is having a very hard time, and rightfully so, raising capital.

To me, the real moral hazard has been the bailouts for the bankers and other businesses. We've encouraged this ultra-risky behavior at the governmental level.

I don't think this will be as big of a problem for the US, but our own debt problems will come to a head, and I think we're going to have to have one-party rule to solve our problems (I just hope it's Democratic, not Republican, because Republicans will prioritize programs that produce no marginal net social benefit- like the military and upper-class tax cuts)
 
so socialism is a great form of government... until you run out of other peoples money?

can't they just break up... and the individual nations print their own money? I know it's a bad-aid and would make it worthless but it'll bail themselves out.
 
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