Investor Fears Spike as Italy (and the EU) Inch Closer to Doomsday Scenario

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Risk of contagion in Italy and far beyond would be huge.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Just how low can Italian bank shares go? That’s the question plaguing the minds of European investors, policy makers, bankers and central bankers. Today the shares of the country’s third largest publicly traded bank, Monte Dei Paschi, plunged 14% to €0.33, their lowest point ever. Two years ago, they ran between €5 and €9.

The reason for the latest plunge was news that the ECB had sent the bank a letter urging it to draw up a plan for tackling its bad-loan burden. The lender is being asked to reduce its load of curdled debt by €10 billion to €14.6 billion by 2018. That’s a big ask even in the best of times, and these are certainly not the best of times for Monte Dei Paschi. According to Bloomberg, its loan loss provisions would represent over 95% of its operating profits.

No bank in Europe has fallen so low, so fast, without completely crashing and burning. On the eve of the global financial crisis, Monte Dei Paschi was worth €15 billion. Now its market cap is just over €1 billion. The only reason it’s still alive today are the multiple taxpayer-funded bailouts it has received, and all they seem to have achieved is to postpone the inevitable (and prolong the taxpayers’ suffering).

Earlier this year, Italy’s government was given the go-ahead to set up a bad bank in which to bury some of Italy’s most toxic financial waste. It was a €5 billion solution to a €360 billion problem, as we warned at the time – far too little, far too late. Last week the EU, in a fit of desperation, authorized the country to use “government guarantees” to create a “precautionary liquidity support program for their banks.” But given that the guarantees are not supposed to be used and do nothing to address the bank’s biggest problem — gaping capital holes — the stunt was pure political theater.

Lo and behold, just four days later, investor fears are once again spiking. This time around, however, Italy won’t be allowed to use taxpayer funds to bail out the bank, thanks to Europe’s new rules that require that stockholders and some bondholders get bailed in first.

“We wrote the rules for the credit system, we cannot change them every two years,” Angela Merkel said last week.

Whether Merkel holds firm to her commitment is a matter of debate. Given that the rest of Italy’s big banks, including its one and only global systemically important financial institution, Unicredit, are in similar straits to Monte Dei Paschi and Italy’s government boasts the third biggest public debt pile in the world (after the U.S. and Japan), there is a very real risk that the country could end up suffering a bank run, if not an outright banking collapse.

A subsequent bail-in would decimate Italian retail investors, who own roughly a third of Italian banks’ debt, just months before Italy’s Premier Matteo Renzi faces a make-or-break national referendum on constitutional reform, in October. As Hedge Fund manager George Soros warns, Italy faces the risk of a “full-blown banking crisis” that could bring the rebel Five Star Movement to power as early as next year. That is the last thing either Brussels or Rome wants.

Hence the gathering rumors that Renzi is considering taking matters into his own hands and enacting a unilateral sovereign rescue of the Italian banking system in defiance of the EU. Ambrose Evans-Pritchard writes in The Telegraph: those who know Renzi say “he will not go down in flames for the sake of European ideological purity.”

It’s not the first time Renzi has ruffled Brussels’ feathers. A couple of years ago he defied the Troika of creditor institutions by warning that their technocrats would never be welcome in Rome. Now he seemingly thinks (and he could well be right) that he holds a much stronger bargaining position than might first appear, thanks primarily to the ever-present danger of crisis contagion in the Eurozone.

As the EU’s third largest economy, Italy’s weak economic performance — the country has barely grown this century — is as much of a headache for Brussels as it is for Rome. With €2.23 trillion of public debt, €400 billion of which is festering on Italian banks’ balance sheets, Italy is not only too big to fail, it’s too big to save.

If a bank the size of Monte Dei Paschi were to fail, the risk of contagion, first within Italy’s borders and shortly after far beyond them, would be huge. That is why policy makers in Europe are now frantically looking for a loophole in the new legislation that would allow them to subvert the same bail-in rule that they themselves created. According to Reuters, they may well have found one:

The rules, which have been in force since January, allow a state to directly acquire a stake in a bank that fails a stress test and cannot raise capital in the markets because of “a serious disturbance” in the domestic economy.

If Europe’s leaders opt for this ruse, the message to all other Eurozone nations will be loud and clear: when things get serious, Europe’s financial rules can — indeed, in some cases must — be bent or broken. The result will be to render the bail-in rule null and void even before it’s been properly used. That’s not to mention the PR nightmare of raiding European taxpayers once again to save a bankrupt financial system. By Don Quijones,Raging Bull-Shit.

So for how long can this elaborate confidence game be maintained? Read…  As Fears of “Bank Run” Escalate, Italian Banks Get €150 Billion Bailout of Empty Promises

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  60 comments for “Investor Fears Spike as Italy (and the EU) Inch Closer to Doomsday Scenario

  1. shah8
    July 4, 2016 at 8:48 pm

    If they’re too big to save, then they’re sort of too big to save. I doubt the loophole will be used. Same issue as the gov’t guarantee plan…

    • micromacroman
      July 5, 2016 at 7:53 pm

      The European situation is not hard to figure out at all. It is just like the U.S. after the revolution in 1776. They had a “Confederation of States”. 13 equal little countries. Shortly after independence-by 1790 they figured out that the system would not work for economic and political reasons. 13 diff currencies, 13 diff trade rule, 13 diff militaries, 13 diff foreign policies. Once they decided to go national it was ALL the way, not just a currency or economic union. That is the problem with Europe. They are nothing more than a confederation of states. They are doomed to fail without a total confederation. In America rich states like california help support poor states like Missippi & New Mexico. In return those poor states in the west and south host many federal projects of military, enviroment, gov’t, land use, and other social sacrifices in return. Europe has not done the full military, political and social confederation that is necessary. This why no other country seems to understand our “electoral college” system that spreads power geographically. Or the Senatorial system that is “suppossed” the represent the individual states. They genius of our republic is spreading representation both geographically and proportionally. Not as a democracy, but as a representative republic. The European union seems to do neither. And as a construct, seems only a matter of a currency, and an immigration system & nothing more. Leaving too many conflicting positions unrepresented by the individual citizen, or any balance of political power or rule of law.

  2. Kelly
    July 4, 2016 at 8:54 pm

    I think we are at about two weeks & a few days away from a global reset just as Kyle Bass suggests. The need for ‘global wide’ bank recapitalization is at extremes!

    • polecat
      July 5, 2016 at 1:10 am

      It’s funny …. I read that as bank ‘decapitalization’ !! …. which, if you consider the amount of control fraud these mega ‘banks’ engage in, is exactly what should occur IMNSHO………

      • July 5, 2016 at 5:44 am
        • The Misanthrope
          July 5, 2016 at 5:46 am

          Guess U canceled my own reply with angle brackets. Try square:


  3. Fred Hayek
    July 4, 2016 at 9:17 pm

    The anti-EU forces in Italy might win in coming elections no matter what. But if the EU tells Italy to screw and Italian banks go belly up then even establishment sympathizers in the Italian electorate will see that there’s no point in staying with the EU. It will send that same message to the uncertain portions of French and Spanish electorates as well.

    So, no matter how much EU officials bluster, Renzi is in a strong negotiating position. Give him what he wants or get something you *really* don’t want and maybe in multiple venues.

  4. Agnes
    July 4, 2016 at 9:43 pm

    Fractional reserve banking works as long as the coupons not in reserve are used for productive enterprise, and as long as trust is kept with the savers. Neither of these conditions seem to be met, so there will be a crisis. It is like the plant pots at my work…we only have enough of the most critical type to serve (immediately) one sixth of the space. We don’t have more than that because everyone is supposed to give notice if they will need a lot(the same for dirt), and we use the money we would have spent on that supply in improvements and repairs(Not on huge bonuses for the 3.5 employees–I am the 0.5). When a principle investigator walked in on a Saturday and her cooler was warm, she might have been incandescent…but she saw the engineer was there and had already been on the roof. She was unhappy but satisfied….What have banks done for their customers? Played in the derivatives market? That would be like me taking the repair funds and betting on the weather(the cme has had futures and options on weather since 1999).

  5. NotSoSure
    July 4, 2016 at 9:43 pm

    I think VIX will go to single digits with this news.

    • Tommy Boy
      July 5, 2016 at 12:56 pm

      Someone else knows how to fade the news. Just make sure doomsday news is on most websites like Brexit was.

  6. Paulo
    July 4, 2016 at 10:43 pm

    Just stockholders and bondholders for the bail-in? Are depositors in the clear? Or, will there be run on the bank by depositors?

    • nhz
      July 5, 2016 at 7:08 am

      In most EU countries depositors with over 100K in savings will get bailed-in as well. The problem is, in many countries even that will not be enough if big banks like DB are at risk, so somehow the threshold will go down to e.g. 10-20K euro, or the taxpayers (or maybe in some countries the big pension funds) will be on the hook anyway.

      Leverage in the EU banking system is ridiculous, many big banks have something like 1% reserve ratio. So there is no way to protect savers when things go really wrong.

      Whatever happens, I’m sure the salaries of the banker douchebags will go up a lot again after the crash. At the moment in my country they are again increasing like crazy and banker salaries are WAY above what is considered acceptable in other sectors. And why not, these people produce, own and operate the real WMD’s …

      • d'Cynic
        July 5, 2016 at 1:16 pm

        On the other side of the Atlantic, the deposit insurance is managed by some outside corporation to which the banks pay: FDIC, CDIC. So in case the bank goes down, this institution would pay the insured amount. In the last crisis in the US, only the small banks were allowed to fail, and they were promptly liquidated and sold to other institutions considered more solvent, so this fund did not get depleted too much. But in a full blown crisis of confidence, I am not sure.
        I also leave out the concern, that perhaps the insurance corporation funds might be invested in some liquid assets rather than sitting idle.

        • Petunia
          July 5, 2016 at 7:20 pm

          The FDIC has been in trouble for many years, even before the crisis. You need read some of what Sheila Bair has to say on the subject. She ran the FDIC during the financial crisis.

  7. John Doyle
    July 4, 2016 at 11:45 pm

    I wonder if it might work for all the Euro using nations do what the US does [I think] The fed can issue dollars as the US is monetary sovereign and there are 6 federal reserve banks across the country.
    The Euro zone could also issue Euros from each country’s central bank to attend to local needs so tantamount to having monetary sovereignty but all in Euros. As long as the total economic performance across all of the nations is OK, then there is no limit to the Euros that can be created for any government’s debt.
    It would stop members like Germany raiding Greece’s assets for example.
    They need to all be in it together!

    • nhz
      July 5, 2016 at 6:52 am

      this is nonsense, one might as well say that Greece is raiding Germany’s assets. Look at the thousands of Porsche Cayenne cars on the streets in several ‘poor’ towns in Greece … The big question is if Greece will ever pay its bills for everything it purchased (often from Germany), or the outrageously high civil servant pensions from the last 10 years or so that were all paid with ECB money. If Greece doesn’t pay it is foremost the German taxpayers that have to eat a loss, not the Greek public (although of course some of them, especially non-government workers and some of the pensioners, are in big trouble at the moment). Greece has been living far beyond its means for years thanks to the EU (and Draghi); now politics has to decide who gets the bill and it sure isn’t the Greek elite and upper middle class that has profited from all this.

      printing money solves absolutely NOTHING.

      • John Doyle
        July 5, 2016 at 4:25 pm

        I responded but it hasn’t shown up. But you are not correct.

        • July 5, 2016 at 4:46 pm

          Propaganda based on total nonsense by pro-money-printing shills gets auto-deleted.

    • Petunia
      July 5, 2016 at 8:15 am

      There are 13 regional federal reserve banks and many outposts around the country. The number of banks has nothing to do with the volume of printing. They are there to facilitate the movement of cash regionally and keep tabs on the member banks.

      • John Doyle
        July 5, 2016 at 8:30 am

        Thanks, Petunia. Does that mean the Federal Reserve Bank HQ is the only outlet for money creation? The other branches are not empowered to pay government invoices?

        • Petunia
          July 5, 2016 at 10:59 am

          They use a committee model to decide how much to print, this a CYA operation. But ultimately the chairman, Yellen, decides.

  8. nick kelly
    July 5, 2016 at 1:21 am

    John, John- when are you going to get it through your head that having a press to print money does NOT get you out of jail free.

    “As long as the total economic performance across all of the nations is OK..”
    It’s NOT OK! Economic growth is falling behind debt growth, and has been for decades. Printing a bunch of euros doesn’t change REAL output.
    The end game of what you propose is already in evidence- all African countries have their own currencies, and you can’t go broke in your own currency, right?

    But they are broke as far as the outside world is concerned- you can only
    phone collect from them, including Nigeria. The international phone system doesn’t trust them to forward its share of the money.

    The final, final end game was reached in Zimbabwe, where the regime just kept adding zeros to the bill until it reached a face value of a billion.
    You add zeros instead of printing more because in the end game you can’t afford the paper and ink to print more of your crap ( the suppliers of paper and ink don’t want payment in your product)
    As for Germany raiding Greece’s ‘assets’ ( you mean the islands?) someone else can address that.

    • VK
      July 5, 2016 at 10:58 am

      Zimbabwe is still around. After their currency crisis they are back to a somewhat steady state, heck the government even survived and Chinese investment really got flowing the last few years.
      Argentina collapsed and is somewhat stable now. History is full of crisis, $h*t happens, people move on, banking and government debt crises are hardly new to history. Printing can be done to a certain point without provoking hyperinflation, it depends on managing expectations. We have $230-250 trillion of money and credit in the world, printing $10 trillion to recapitalize all the major global banks is a trivial sum of 4% of global money and credit supply.

      • nhz
        July 5, 2016 at 11:46 am

        please don’t tell anyone that the former Weimar Republic is now an industrial powerhouse; the moneyprinters might consider that a strong recommendation for their current policies ;-(

        Zimbabwe and Argentina are nowhere close to their economic position before the money printing started. They will probably have at least one lost generation, and may end up completely owned by foreigners. For all except the elites it is pretty much a nightmare.

        BTW, many bankers thought they were just as clever as you and could determine that they could print some more money without going into hyperinflation. In 99% of the cases, they were wrong; about 1300 currencies have vanished over the years and total debasement / hyperinflation was reason number one. I think you are wrong too about ‘managing expectations’.

        • d'Cynic
          July 5, 2016 at 1:28 pm

          Totally true, plus they cannot see inflation if it hit them in the forehead, or in their derriere. For example, hyperinflation in property prices is all around me, but they scream not enough inflation. Because housing is an asset for speculation, and not for living. It was the latter until they made it into a speculative asset.

      • nick kelly
        July 5, 2016 at 7:38 pm

        The currency no longer exists- they dollarized, adopted the US dollar.

        If by somewhat steady state you mean not getting worse- there isn’t much left of an economy that was once a bread basket for Africa and is now a receives aid.
        Re: Chinese investment. I know China gave them 500 tractors- which immediately ended up in the driveways of government officials.

      • nick kelly
        July 5, 2016 at 7:51 pm

        I hope you aren’t equating Argentina and Zimbabwe.
        Argentina has problems for sure, but it isn’t a failed state.
        The new government actually managed to sell about 15 billion in bonds a few weeks ago- a laughable enterprise for Mugabe.

    • John Doyle
      July 5, 2016 at 4:24 pm

      I responded to you but it hasn’t shown up.

      • July 5, 2016 at 4:46 pm

        Propaganda based on total nonsense by pro-money-printing shills gets auto-deleted.

  9. nick kelly
    July 5, 2016 at 1:58 am

    Let’s face it, they are done.
    I think there is something that needs to be said that I am reluctant to say. There is a Latino common factor.
    The northern European countries seem to accept austerity, the suddenly dread word that is almost synonymous with virtue in the north and is reviled in the south. Germany has always been austere. There never was a real estate bubble; going into debt was never fashionable.
    This is my take on it: the Latino countries regard reality as an agreed construct, a political creature, while for the northern countries it is objective-independent of what people think or want.
    You know what I think-but I’m a northerner!

    • nhz
      July 5, 2016 at 6:58 am

      Germany is relatively ‘austere’ e.g. with little wage growth and some wages (especially for young people!) lower than in southern Europe. But much of that is related to the unification with former Eastern Germany, which for many years was a giant black hole for money that absorbed all the money printing.

      Most of the Northern EU countries are not ‘austere’ at all, they are splurging on debt just like in the south, only the economics are different. e.g. Italy as huge public debt but relatively little private debt (many people own their homes debt free or with relatively low mortgage). The Netherlands on the other side has relatively low public debt but the biggest private debt in the world; most of the homes are leveraged to the max, many of them carrying mortgages that are higher than the home is worth. Leave it to the politicians and they always find ways for more ‘bread an circuses’ – be financially irresponsible, make the problem bigger and shift it into the future (if possible at least until after the next elections).

  10. Yoshua
    July 5, 2016 at 2:02 am

    They created a banking rule and now they can’t change it ? Italy must be sacrificed for a banking rule ?

    Europe must be sacrificed for the Eurozone ? We created the Eurozone and it must be saved no matter what ?

    I wish I knew what Brussels and Berlin really wants.

    • nick kelly
      July 5, 2016 at 2:32 am

      Italy can’t pretend forever. The tragedy of the euro is that it gave Germany’s credit card to the all the members, like Greece.
      Italy would be toast without the EU, its borrowing costs would be double digits.

      • John Doyle
        July 5, 2016 at 2:55 am

        No, it would simply be able to devalue and recover it competitiveness. It’s an option all monetary sovereign countries have. But they gave it up to join the Eurozone. Truly a dreadful mistake.

        • VK
          July 5, 2016 at 10:52 am

          Yes and a correctable mistake. Italy should leave the EU, get the lira back, devalue and have enough cash flow to sustain their banks and businesses and we can all move on with humanity’s real goal, the advancement of science to make life better for all human beings. Money is entirely inter-subjective, we can create as much as we want, it’s value depends on the quality and productivity of the people and resource base behind it. The fact that the EUrocrats can’t differentiate the real from the imaginary shows how up the creek they are. An entire generation of youth are being sacrificed, because how dare we try people’s QE to stimulate the economy? Money is after all a preserve of the rich only and should only benefit them and asset their assets. Stimulus is only for rich people.

        • nhz
          July 5, 2016 at 11:50 am

          but first they would have to default on all their loans, because most loans (including the public debt etc.) are in euro or dollar and with a strongly devalued lira they would not be able to pay them back. Just imagine what happens to all those homeowners with euro mortgages (they will be converted to the same nominal amount of cheap lira, it’s impossible).

          So first the country probably has to go bankrupt, after that yes they may be able to get competitive again if they don’t make the same mistakes (you don’t need to join a currency union for that, just look at Zimbabwe and Argentina …).

        • Alistair
          July 5, 2016 at 12:56 pm

          John, there is a massive cost to devaluing your way out of debt. It obliterates the assets and economic prospects of at least one – if not two – generations. It’s a scorched earth policy, and represents the culmination of total economic failure.

          By the time devaluation is even considered, the country has become a failed state. And that fact must be kept at the forefront of any discussion about devaluation. It isn’t a fix, a solution, or a cure, and must not be presented as such. It is just one method of accepting defeat and economic collapse.

          Is devaluation a better way of allowing economic collapse to unfold than, say, default? That’s debatable. But let’s be clear what we’re debating here – different methods of accepting and adapting to economic ruin. Once we’re debating default vs. devaluation – we aren’t talking about solutions, “corrective measures”, recoveries, or maintaining the status quo anymore. We’re talking about the least painful way to reach rock bottom.

        • John Doyle
          July 5, 2016 at 9:13 pm

          There’s no pain free solution. We can be sure of that. Italy is no basket case but its exports have fared badly in competition with China and under EU rules it’s not been able to take the old road down to a new setting. It’s only going to get worse so the country has taken matters into its own hands and bugger the rules. They will test the EU rules and regs with no real fear now of consequences since Brexit .
          My suggestion of a the EU setting up central banks for each nation is just to clear a path for whatever has to be done, without the current obstructions. Nearly all nations have gone bust before, Germany 3 times, so it’s not yet the end of the world [ not that that’s far off now – another topic]

      • nhz
        July 5, 2016 at 7:02 am

        Agree; Italy should have refused the EU credit card, but now the bill for years of irresponsible public finance (much of it under the former ruling of Draghi) is coming, just like it did for Greece.

        I guess Renzi hopes that Deutsche Bank goes down first, let’s see how firm Merkel’s commitment to the EU bailout rules are in that case ;-)

      • Yoshua
        July 5, 2016 at 9:18 am

        The tragedy is also that Greece and Italy can never transform into Germany.

        July 5, 2016 at 3:48 pm

        Here is a very simple question with a very difficult answer:

        Why is Germany different from Greece? Or let us expand this frightening concept?

        Why are the Northern European countries different from the Southern European Countries?

        Until the question is answered, we are all wasting our time

    • d
      July 12, 2016 at 2:47 am

      Brussels and Berlin = Yin and Yang they are definitely however, in conflict, in the European model.

      Berlin wants a balanced budget, or reducing deficit Budget.

      Whereas Brussels wants to print like there is no tomorrow, as this will kick the can a little further in the club med states, that are waiting (in vain ) for a TRUE global economic recovery.

      The planet and china in Particular has borrowed at least 30 years of forward growth with a declining (Affluent) population, sideways is the new growth.

  11. MC
    July 5, 2016 at 3:50 am

    One thing that Italy discovered since 2008 is she has a well stocked arsenal of weapons of financial mass destruction, an extremely useful bargaining chip at any negotiating table.

    This has led to successive Italian governments and EU/German officials putting up a Punch & Judy Show for the benefit of a progressively less gullible public and as gullible as ever investors. Like the puppet show, the outcome is invariably the same: some way to allow Italy to kick the can and avoid true reforms for another few months.

    The big problem is Italy’s financial arsenal is not safely locked away in a well guarded vault and only dragged out when there’s need of it at the negotiating table. It keeps on growing and it keeps on deteriorating. Just because somebody is finally talking about them NPL’s have not magically stopped growing. As I said before, Italy’s banking system, not unlike Austria’s, is structured in such a way losses, bad calls and political favors can be swept under the rug until people start tripping over it and getting seriously hurt.

    In Italy’s case, these would be the shareholders and bondholders. Now: the bulk of these are not other banks or hedge funds. They are retail investors, often elderly people, who piled into them either because they were willingly kept in the dark about the risks (see the Tango Bonds Scandal) or because they cynically reasoned they’ll be bailed out no matter what.
    Ever since yields on sovereign bonds has been demolished by the “heroic” ECB, retail investors have started piling into bonds issued by banks, often not caring or not knowing the miserable yields offered do not reflect risks, especially if the Punch & Judy Show gets out of control and the bail-in rule becomes law.
    In short, apart from the risks for financial and credit markets worldwide Italian banks are a ticking timebomb for local savers who piled onto them. Most of these savers are retirees who need the yield, no matter how minuscule, to integrate their government pensions, which have stopped keeping up with inflation since 2005 or so.
    In turn this is social dynamite.

    You can start understanding why I have come to believe Italy’s banks are even more dangerous than the deflationary gale blowing from China and the great unknown Japan has stepped into.

  12. Petunia
    July 5, 2016 at 8:27 am

    I forget how much gold Italy holds, but they are easily in the top 5 in the world. Now that the CBs have destroyed the global economy they will want to revert to a gold standard, only because they don’t know how to fix what they broke. A gold standard would place Italy high up on the pyramid. I don’t think it will work because gold has no real utility and there is not enough of it. But, anyway you look at it, the reset is coming.

    BTW, I was out bargain hunting the July 4th sales and it was dismal. No good sales, no good merchandise, and no shoppers. They should have closed for the day.

      July 5, 2016 at 3:56 pm

      GOLD has the ultimate utility. It can not be made by man. AND, for the last 5,000 years, or so, it can buy you anything in the world, anywhere, anytime.

      Second, there is enough GOLD. If returned as the only real source of real money, a price in paper notes will be established very fast. $2,000 an ounce or $20,000 an ounce. There is sufficient gold to handle any amount of paper.

      GOLD is not the problem. It is the solution.
      Paper is the problem.

      • micromacroman
        July 5, 2016 at 7:06 pm

        “anything in the world, anywhere, anytime”. So you can go to walmart & make your $200 purchase with gold–have you done that?? bought a car or house with gold ? Paid for car repairs with gold ?

          July 6, 2016 at 8:55 am

          Yes. The coin dealer I have done business with, for over 35 years, pays on my delivery of GOLD coins, small bars. I usually get paid in US Notes since I am in the USA.

          Now, using the nation’s paper, I can buy things. Meanwhile,the very same gold coins can be exchanged for any nation’s presently used paper notes.

          The GOLD is universally accepted, anytime, anywhere.

      • Petunia
        July 5, 2016 at 7:30 pm

        If you can get some first world teenagers to trade in their smart phones for a year for 2 ozs of gold, more than fair compensation, I would agree with you about the utility of gold. But you won’t get any of them to do it. That is the real failure of gold.

    • Agnes
      July 5, 2016 at 7:08 pm

      And no all night firecrackers here in Wyoming–people are pinching pennies.

  13. littlebit
    July 5, 2016 at 9:00 am

    The Uk is gone. Germany is now in recession. Where is the money going to come from? The spending habits of a number of the EU countries don’t seem to be changing along with employment rules of these idiots, I cannot see how the EU is going to survive without major overhauls that they do not seem willing to undertake. I have said since the EU was formed that you cannot have that many diverse economies without iron clad rules. It aint-a-gonna work.

    • VK
      July 5, 2016 at 10:45 am

      Where is the money going to come from?

      Same as where the other $230-$250 trillion in global money and credit came from, the collective imagination of human beings that authorises private banks to issue credit and central banks to issue money.

      • nhz
        July 5, 2016 at 11:54 am

        This ‘simple’ solution means massive inflation and even heavier punishment of savers, renters and small businesses then we already have now. I can assure you that a big part of the economy will not function for at least one generation because the social contract will be completely broken, and people remember (no, not the parasites who feel entitled to everything they want from the government, without ever contributing something themselves – they will just wonder why their money is running out before the end of the month when the economy goes black).

      • Alistair
        July 5, 2016 at 1:08 pm

        And how’s that working for the rest of the world right now? Only a tiny bit better than for Italy. We need to get away from this idea that the quantify of money can be increased without a corresponding reduction in its value. You said yourself in a post above, that money is a product of our imagination, backed only by the productivity of the citizens and firms using it. The logical extension of that argument – one you don’t seem to accept – is that you can’t print your way out of trouble. Printing does not lead to more productivity or more valuable assets – it just changes the valuations of said productivity and assets measured in that same currency you just printed. By definition, a zero-sum game, yet one the central banks the world over have embraced. You would have us extend QE even further, and distribute “helicopter money”? All that would do is move us from asset price inflation to consumer price inflation, with all the devastating consequences that entails (wages always keep up with inflation right? Sure they do.) And regardless of what the Neo-Keynesians tell us, inflation is not the same as growth.

        • John Doyle
          July 5, 2016 at 9:21 pm

          We don’t have an alternative now to debt issuance to maintain the status quo. We ceased being a productive economy back about 1971, which was when western civilization peaked. We are sliding slowly downhill as real resources decline and/ or become too expensive. If today’s US debt/GDP ratio is 367% it means we need $3.67 of debt spent for $1 of GDP output.
          That’s not a profit. The whole economy is in deficit and is only carrying on because of endless credit. And that is the real, energy, economy, not the financial economy.

      July 5, 2016 at 4:00 pm

      That was the intent. It is supposed to fail so that the people “SCREAM” for a savior. And the Savior?

      One Europe. One Parliament. One “Constitution”. One World.

      The pain has not even begun. The Euro Central Bank loaned our script as fast as they can to any dead beat nation. That was the point. Get these nations is so far with Debt (borrowed paper) that they have to give up their Nation status.

      What is so sad is that the ECB loaned these Nations paper. Paper they could have printed themselves (they used to). Now, these Nations can not pay back this worthless paper, but must, and therefore will become slave states. The ECB will “rule over the Nations”. Where have we heard that before?

      A beautiful plan.

  14. randombypasser
    July 5, 2016 at 12:52 pm

    “If Europe’s leaders opt for this ruse, the message to all other Eurozone nations will be loud and clear: when things get serious, Europe’s financial rules can — indeed, in some cases must — be bent or broken.”

    By far even worse message to every citizen in Eurozone, and World, will be that of telling Eurodemocracy is actually oligarchy and lying and deceiving is ok if You are part of that oligarchy.

    Yes, we allow You to vote about this and that, but in the end we will decide the matters the way we want them to be because we know better than You fools.
    Yes, we do make laws and rules which we all are to follow, except when we the Oligarchy decide it’s better for us to break the rules, by the Oligarchy, for the Oligarchy.
    Yes, the People, taxpayers are not to save any financial institutions anymore no matter what except when we decide that we don’t have the guts to face the truth and risk our position as the Oligarchy.

    And then what every regular Joe and Jen get from this? Was it conscious or subliminal everyone will loose a bit of their remaining trust to leaders and probably also get a bit more arrogant when there’s a chance to choose between following rules or bending them a bit for one’s own good.

    The message they send will be one of telling that immorality, disregard and dishonor is ok and that will have huge repercussions after some time.

  15. July 5, 2016 at 6:57 pm

    Paradoxically this banks scare has moved investments much more than the nirp absurdity, at least in my case.
    I run a hotel in Rimini (Adriatic coast, Italy) with my family. We have no debts and we had some investments in stocks, bonds and cash. Well this year in an indecipherable, rigged market, and with the scare of failing banks, we sold those investments and we used all our cash for renewals and updates of the building. A new roof, solar panels, thermo-acoustic insulation, an EV charging station in the parking lot… etc etc. we put all our savings at work. We now have all our eggs in one basket, but at least we still have our eggs…
    I know others had the same thoughts. Draghi (which by the way in Italian means “dragons”) is telling us since enough time to use all our Euros now, or lose them forever!

    • Agnes
      July 6, 2016 at 2:05 am

      Bravo!!! The small entrepreneur is the anti-fiat!!!!!! I admire your family greatly.

  16. July 5, 2016 at 9:12 pm

    Everyone has been trying since 2000 to keep the status quo afloat with minimal success.

    Let’s try again!

    The taxpayers are broke: let’s borrow more from the taxpayers’ grandchildren and use the funds to bail out billionaires. If they cry = horrible, horrible.

    Best to let the banks fail, keep depositors (up to a point) whole and let the billionaires lose all their money. A few losses here and there and the rich get the message about ‘risk’.

    Ironically, short term Italian sovereign debt (2 yr) carries a negative interest rate which suggests there is absolutely zero-no-negatory risk with regards to the Italian government borrowing!

    We live in silly times, folks!

    • nhz
      July 6, 2016 at 2:37 am

      “Ironically, short term Italian sovereign debt (2 yr) carries a negative interest rate which suggests there is absolutely zero-no-negatory risk with regards to the Italian government borrowing!”

      More likely this reflects that the risk of having money in the bank in Italy (at interest rate that is probably just above zero) is bigger than the risk of the government not honoring their bonds.

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