Italy has now officially gone over the “Oh Shit!” threshold for financing its debt. It can’t roll over its debt obligations when the interest is north of 7%. There are talks of the IMF getting involved which means that the US taxpayers may end up footing some of this before its over. Germany is supposedly looking at drafting language to allow countries to leave the Euro zone. They have gone from wanting to do anything to keep the Euro going to this in the span of a few weeks. Greece was manageable, but Italy is not. If they are able to scramble and eek out some sort of something or other to keep Italy from defaulting, it will totally tap out Europe. What about the other countries teetering on the brink? Spain, Portugal, Ireland. Hell, even France isn’t looking so hot.
It’s looking bad. I hate sounding like a broken record, but it is painful to watch this unfold. There’s no question that Europe’s issues are going to depress everything even if they manage not to drag anyone else down with them. I really worry that the Obama administration, or even the Fed on its own (can they do that?) will jump in and try to bail out Italy. The IMF is a back door way of doing it, but there may need to be much more cash needed than is in the coffers of the IMF. It’s not as though we have any money to send them of course, any aid we send would be in the form of printing vast sums of money, again. At some point, worthless currency will be chasing bad debt. It would have to come to a crashing halt at some point, right?
What needs to happen is what econo-wonks call “deleveraging”. In regular speak, that means writing off and clearing away debt. Clearly, there is far more debt than there is funds to pay for it, so a lot of people that bought those bonds will have lost all that money that they “invested.” Treasury bonds have microscopic yields right now. As James Grant has pointed out, you earn interest in exchange for debt. Right now, treasuries will pay you less than the inflation rate, so you’d be losing money. Money market funds are currently paying a single basis point in interest. That is one one hundredth of a percentage point. As Mr. Grant says, it is “the profitless assumption of risk.” Every place you put your money has risk, if you put it in something that pays you nothing, all you have is risk…
It looks like everything is bound to go down in value during this mess, everyone is going to lose something. Gold is looking like a good way to store your value… probably. I still like my idea, wait for stocks to take a big hit and then get my money out of the money market fund. I’m hoping to jump in at a point where most of the losses have already occurred, but trying to call the bottom of a market is always a fool’s errand. I don’t have a good idea when the best time will be for buying stuff, but I hope I know it when I see it!
Hold on folks, it’s going to get ugly!