Reasons to Be Fearful as Italian Yields Spike

    • HOPE is eternal especially when backed by HOPIUM!


      There is a clear discrepancy between what is happening at macro level as well described by the bond market and the increase of the spread and how people live in Italy.

      In the North, except in the suburbs of major cities, it is clear there is wealth. Nice cars, full restaurants and hotels during the weekends. I can go on with examples to prove that people have a good lifestyle.
      It should not come as a surprise that in Italy there is one of the highest rates of home owners and ‘fat’ savings accounts.

      And this is now my question: Is it possible that, rather than the single individual (middle class) that is living within his disposable income, it is simply the government that is spending more than it can afford consequently raising more debt? These guys to me do not understand how to manage the billions of Euros of income they get from taxes, VAT, etc. ‘They’ have created such an expensive and complex machine that is eating more that it can produce.

      As the banking system in Italy is very cautious to provide a mortgage or a loan for an individual, how could be possible that they are facing so many issues? The question is that maybe they have been not so cautious in their investment decisions using the saving account deposits and asking additional funds from larger institutions?

      I believe we need to be much simpler in our interpretation of the crisis and look at things by adopting basic rules exactly like a middle class family would do: cash flow.

      Probably if there will be an international commission to analyse the spending of the Italian government, it will discover that it is a family that is spending well above its income and it carries on borrowing money hoping for a better future (10 years of almost zero growth!). Now the debt is so high that even without borrowing, the interest on it makes the whole situation unsustainable.

      As the frog does not realise when it is in a water that is gradually heated up to the boiling point until it dies, so the Italian government is thinking that somehow things will get fixed by someone else. The skill set and experience is simply not in this system...but the other big issue is that they are not even asking for help...a rabbit under the spotlight...

      So, my suggestion is to simply reduce the government costs and create clear and few KPIs to monitor such initiative. Once the bleeding will be stopped, we will be able to generate sufficient surplus to reduce steadily our debt. There is no time for a plan to stimulate growth. Not in the short-term at least.

      So IMF or whoever should simply control the cash flow of the government spend and force the cost reduction NOW.

      Personally, I would be able to develop a 100 days programme to cut the cost by 30% as a good turnaround manager should be able to do in a cash crisis...these kind of specialists are not available in any political party, because these guys are not used to manage costs, develop a budget and monitor actuals vs forecast...but they are very good in spending it.

      Maybe, I will write to Mr Berlusconi about my plan (unbundling complex problems in simple tasks comprehensive to everyone)....he may I am... yes a frog, but out of the pot...
      the spread will suddenly decrease....and the bond market will be ‘happy’ again.

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