Or should I say “Euro notes with whipped cream”?
This week interest on German bonds has fallen to 0.08%, that’s as good as free money for Germany. They took this opportunity to increase their national debt from 1.8bn Euros to 2.1bn. Who can blame them when you get money for free.
Naturally a small percentage of those 300bn raised goes toward some populist social programms and the lion share into pockets of the rich in form of tax reductions.
Germany announced record exports of 792bn for the third quarter and forecasts to go through the trillion mark at the end of year.
The world understands, in time of crisis you put your money where it is safe, and that is Germany. It doesn’t matter that you don’t get any interest, you are scared enough to want your money to be safe only.
Bluntly speaking, it pays to create a “crisis” when you can predict how the markets will react. I have detailed this in previous parts with the “dropping a cent” example.
So we can turn to the next act of the “crisis theatre”, Italy. As of today they have to pay 7.5% interest, up from 6.59% yesterday and below 6% on Monday. Italian sovereign debt stands at 1.9bn which is no problem at a low interested rate, I elaborated on the reasons in previous parts.
Why the concerted attack on Italy now?
Italy has had some 60 governments in the past 65 years. Each and everyone was associated with the mafia, even the socialist government of Bruno Craxi. Craxi escaped to Tunisia in 1994 to avoid prison in Italy and died in exile in 2000.
Craxi was the man who turned Silvio Berlusconi from a singer on cruise ships into the owner of construction companies with government contracts, owner of government licenses for tv stations and other media. How this meteoric rise to Italy’s richest man was possible remains a mystery.
Since 1994 Italy is governed by Berlusconi with a few interuptions. Like any other government on the globe Italy has never had any intentions of repaying any debt. This has not been a problem for the past 17 years under Berlusconi, so why now?
Sovereign bonds have default insurance. This is usually such a minute percentage behind the dot that it hardly ever gets mentioned by the financial media, it is money straight into the pockets of the rich as there is no risk involved as governments do not default. In the case of Italy today this insurance rocketed to 5.36% on their 7.5% interest bonds – an indicator that something is more than foul.
These insurances are traded as so called credit default swaps (CDS), so when a government can’t pay the bank holding the CDS pays. About 550bn worth of CDS for Italian debt are held by US banks.
Should Italy default those US banks will pay up (if they have enough which they have not) and the US government will bail them out thereafter as they will all be bust. Aren’t you getting used to this cycle, yet?
Imagine all people walking into the big banks tomorrow, 11.11.11 at the 11th hour and demanding their money in cash, not transfer to another account or bank, but cash.
Wouldn’t it be nice to see this happen?