You might think that governments around the world, already overburdened with excessive debt loads, would be pairing back. Eh… not so much.
Take Italy as an example. When the global financial crisis hit in 2008, Italy’s government owed bondholders about 1.6 trillion euros ($2.1 trillion). It was paying just a little under 5% on its 10-year bonds.
Today, Italy owes about $2.7 trillion, or 25% more than just four years ago. And despite a violent spike in borrowing costs in 2011 – when Italy was paying 7% – yields recently fell to a two-year low. Take a look…
Don’t expect this to last. It seems everyone has forgotten about the euro zone crisis, but that doesn’t mean anything has been fixed over there!
Italy’s debt-to-GDP ratio is now more than 125%. This is well over the 90% threshold that professors Reinhart and Rogoff found to be detrimental to economic growth. And even that idea is a joke.
Italy hasn’t seen real growth in a decade. It is enduring a recession that’s lasted for five consecutive quarters.
The fact that yields are at a two-year low is proposterous. Watch for this market to blow up sometime in 2013 as investors come to realize there may be no way to actually “fix” Italy… or the euro zone.
If you haven’t done so already read the Survive & Prosperissue on “Debt Ceiling – Consequences of Endless Stimulus.”