A quick wise crack

When I wrote the first of my posts on Italian debt, I thought it would be material that would be little more than a curiosity for my American friends.

Well, we just broke your stock market. Your welcome! : )

Can't things just stay calm for a few days while our new baby is born?

All ready to write my part 3 to see what's in store for Italy and the Euro in the future, when I stop for a couple weeks to welcome my new baby. All that's happened since then is:

- Italy's politicians coming together to quickly pass an austerity budget to pacify the debt markets. That almost none of the cuts kick in for two years apparently didn't bother the markets too much: the interest rate Italy's being charged for new loans fell a couple points after it passed. They were probably amazed by the lack of the usual drama and disfunctionality in Italian politics.

- The EU puts together a bigger bailout than expected for Greece, with about 20% of the savings coming from the banks holding Greek debt taking losses- also a surprise development. European debt markets in general take a breather. So attention naturally turns to...

-The circus in the U.S. congress. I don't even want to get into this ridiculousness for the moment. I will make these brief instigations though:
Fact- America's fiscal policy will take a sharp change in direction due to the Republican's stunt. Obama and the democrats showed no inclination to make the kind of cuts in this budget only a few months ago.
Opinion- Does that mean Boehner won? The republicans got much of what they wanted. but America also saw that Tea Party members were willing to inflict a potentially devastating blow to America, just to get its way.
Curiosity- Where have all the republican presidential hopes been during all this mess? I'm not living in America so I admit I might miss something, but how is it one of those guys isn't saying, "Look at all these idiots!" and then finding a more common sense plan to rally an obviously dissatisfied electorate.

-Then just when nobody was looking, Spain and Italy start to get pounded again in the debt markets, and Spain's unpopular government announces elections in a few months.

The new Greek bailout was larger than expected, but nobody thinks Greece is past its problems yet. The Economist actually quoted a higher-up at Deutsche Bank as saying that "at least Greece has a fighting chance" of not needing another (3rd) bailout. How's that for confidence? But what has inspired some confidence was the new mechanism set up by the EU designed to automatically provide financial support to Greece, Ireland, or Portugal if needed. The EU is finally giving a pretty explicit guarantee that at least these little guys won't go bust. Problem is this mechanism is way to small to be able to save Italy or Spain should they go bust. It's entirely up in the air if the EU can/would save either of those countries if things turn south.

So from what I've seen, both the people who support the bailouts and those who hate the bailouts agree there are only two final solutions in sight here. One: disaster leads to a country having to leave the Euro, or perhaps even the entire Euro dissolving. Two: the Euro countries further integrate and have a united fiscal policy. This could mean the creation of "Eurobonds"- basically Germany and the other "good" countries co-signing the same way parents help their kids borrow money for a new car. The kid pays, but if he can't Mama Germany and Uncle France will have to cover it. This is a legally explicit financial guarantee, a symbolic step the Northern European countries wanted to avoid. It could very well mean austerity in countries like France if this keeps up.

Europe looks likely to circle the wagons for now, and this financial integration may well happen. But the Euro will shake with every domestic election that brings an anti-EU party into government, as happened already in Finland recently. It seems the Euro is going to be under serious threat for quite some time to come.

Italian debt: The Prequel

By special request- more on Italian debt!

So, how did Italy wind up in this dire state? In a word, tradition. By that I primarily mean two things. First, Italy has a long tradition of huge public debts. Second Italy is a traditional country- old ideas, old people.

Anyone who ever had the chance to see the old Italian Lira would certainly have noticed the large number of zeroes on each note. When Italy changed over to the Euro the Lira was valued at about 1900 Lira per 1 Euro. I complain now because I can only get one Euro for a $1.40. In Italy's 150 year history the only time the public debt was below 60% were the 30 years after the US eliminated Italy's debts through the Marshall Plan- Italy's golden years. It has breached the 100% level during four different periods for a total of about 40 years of its 150 year history.

So Italy has a long history of dealing with these problems. This near constant indebtedness led to the funny money quality of the Lira. Quick Econ 101 break: When a country is going broke, it usually has two weapons at its disposal- fiscal policy and monetary policy. Fiscal policy is what Washington is going nuts over right now- the budget. Spend less than you earn, and you can use some of that money to pay your debts. Of course, as Greece will tell you, a penny-pinching government ends up pinching everyone. Monetary policy is essentially when a government thumbs its nose at the people who loaned it money. They do this by devaluing the currency the debt is valued in. "What we owe 10 billion? Add another zero to the Lira!"

Using fiscal policy to get your way out of debt causes great short-term pain. Using monetary policy also causes short-term pain (inflation), but this is somewhat balanced by an entirely positive benefit- any company that exports just saw its products get 10 times cheaper in foreign markets.

But when Italy tightened its belt one last time in the early 90's to convince Europe to let it into the Euro, it meant the end of printing out new Lira to pay their debts. There could only be one monetary policy for all the countries in the Euro, and everyone knew the powerful Germans would really decide for everyone else. Why doesn't Germany/the EU just pull an Italy and inflate its way out of Greece/Ireland/Portugal/Italy's problems? Well, last time Germany tried printing money it needed to pay its debts it unleashed a hyperinflation so fierce only Hitler could solve it. You want to tell the Germans it's ok to try it again?

So Italy squeaked its way into the Euro by tightening its belt. But it wouldn't really be fair to say they hit the buffet bar hard after joining. Despite being in a period of glacial growth usually peaking at about 1% for over a decade now, there were no stimulus packages here. Still, they couldn't get the debt level below 105%, and then America went and started a global recession and Italy's debt moved up to its current perilous level of 120%.

Italy have been relatively disciplined for about 15 years now, and yet their debt is higher than ever. One important, unavoidable reason is age. Italy, contrary to outdated stereotypes, has had one of the world's lowest birth rates (currently around 1.5 children/female) for decades. This has left a country chocked full of old people. Two problems there: old people don't work, and they do collect state pensions. For years now people have rang alarms in America about the costs of supporting the Baby Boomers when they retire. Well America's generational crunch will be a fraction of what Italy has had to live through thanks to immigration and a relatively high birth rate even after the end of the Baby Boom. The only good news for Italy is that, opposite of the US, the proportion of the economy the government will have to fork over has already peaked. Good news for my kids, at least.

Dusting this off some

In case you hadn't noticed, Italy's been in the news a lot lately. Sure Prime Minister Berlusconi just lost one painful court decision (to the tune of €600 million) for corruption and is still on trial for orgies with underage prostitutes, but I guess that just isn't enough anymore to grab headlines in America anymore. So, we've stepped it up a notch. Lately smelly old Greece has been grabbing all the headlines, so Italy's thinking of really pulling out a showstopping number. They might go bust.

Bust would be bad. I have some friends and family who might be curious if it would be bad enough to chase me back home. Who knows. I'm optimistic, but really, who knows. If there's a default, several of the biggest Italian banks could go belly up- and there's no sign of there being anyone willing or able to bail them out. So think about the disaster the Lehman Bros. fold was, jam that in a country a fraction of the size of the US, and perhaps repeat the process several times. Well, that's the fear anyway.

So sit around the campfire kids, I'm going to tell the story about how Italy got here. No spin, just blow-by-blow. I think it's a fun story. Very Italian.

Ever since countries starting going bust around the EU (first Greece, then Ireland, then Portugal immediately followed by Greece again) people kept looking at Italy and waiting for a wobble that hadn't showed signs of coming yet. Italy has been living on thin ice for years. Their total debt is 120% of GDP. For reference- a 100% is considered really dangerous, and the US is at about 65% now [Edited- I originally wrote 80%. Sloppy fact checking department]. But Italy had been stable at that position for years. They showed no sign of being able to grow their way out of trouble, but whenever necessary, they tightened their belts.

Then the Italian government picked a really bad time to wobble, as Greece looked to be careening to a 3rd bailout- or worse. Berlusconi's 15-year long grip on Italy was weakening. He got pounded in 2 straight elections. So he and his coalition buddies start grumbling about tax cuts- something the market would absolutely not forgive if it expanded debt. But it was all political postureing. Despite the fact that both parties in the 2-party majority here would have wanted tax cuts, they were never going to get them. How? Finance Minister Giulio Tremonti is practically a 1-man show with the budget. Then Tremonti got sucked into Italy's latest corruption scandal (*sigh*). The markets started to freak.

Here's the problem with having a 120% debt. It's like having huge credit card bills and barely squeaking by with just covering the interest. Imagine the bank that issued the credit card suddenly declares it refuses to extend your credit and needs all the money you owe now. That would never happen with a credit card. If you can't pay the interest on your debt anymore the banks shrugs it off without noticing. If a country can't pay its interest payments, banks go bust. The banks have an incentive to understand sooner rather than later when a country is going bust long before it happens so they're not the ones left holding the hot potato. Soon everyone gets nervous, and starts avoiding the debt. The only offer of loans the state gets come at higher prices to offset the higher risk of default. So higher prices become higher debt, which lead to higher prices and... default!

The only way out of that spiral is to prove your a safe bet- i.e. you suck up huge cuts in the hope the simple act of austerity will soon lower prices to where they were before. Italy was already working on a belt-tightening measure when everything broke: it was ultimately considered half-convincing. Basically the idea of the austerity was appreciated, but not so much the fact that most all the cuts kick in during 2013, conveniently delayed until after scheduled elections. So their borrowing costs when down a smidge, but are still well above where they were a few months ago. As if the markets have said "No really, this is your last warning now!"

So my hopes: we squeak by here another year or two. Berlusconi will be gone after 2013, that much is sure, but all the rest is up in the air. Maybe we'll get lucky and get some competent management here. Hmm, why do I feel obligated to make some light-hearted joke intimating my doubt here?

Incremental improvement- that's my goal!

I spy a keyhole. [True story]

Even though I generally try to avoid confronting such things, decision-time is coming soon. Decisions when it comes to work are something I've typically left to inertia and fate. In other words I don't make a decision and I sit back and wait for the next big thing to stumble upon me. I can't say this policy has been a total failure, but it's produced mixed results at best. I have to admit it's a tempting choice at this juncture of my life as well. This time it would mean hoping the aforementioned job at my friend's company comes through, with the status quo (teaching) as the alternative should the job not come through.

The alternative to not deciding is to start pounding the pavement and sending out resumès.

The Pro-decision case: Well, frankly the merits of being proactive and job-hunting are fairly obvious. Normal [people] do this kind of thing all the time.

The Pro-Leave-It-to-Fate case: This side usually has the day with me; but this time it can actually make a decent argument provided indecision doesn't mean inactivity.

What that means:

A) I feel this job at my friend's is worth waiting for. Honestly. It's the kind of position I was [already] looking for in the type of company I [already] wanted.

B) If I am still teaching next year, measures must be taken to improve my pay- i.e. organize private lessons outside my school.

This may be a passive choice (sitting back and hoping a job is foisted upon me) but it mustn't be a lazy choice. Private lessons pay 2x as much as my school pays me, so even a few hours a week on my own could make a big difference. And let's say there's even a:

C)I want to give some serious thought to an idea I hatched some time ago for creating a business. I know exactly what I'd like this business to offer: a tour of an Italian area doing what locals consider worth doing. Without getting to into it, let me explain it like this: Watch an episode of Anthony Bourdain: No Reservations on the Travel Channel. He inevitably will have some local show him his idea of "the sights." I basically want to sell that experience. There are lots of issues about the feasibility of such an exercise, but I probably have enough contacts to find someone who can give me answers to the questions I have or at least give me enough info to make an informed decision. Like I said, it Decision-time.

An updated update on things

Hasn't been much in the way of novelties lately out here. Dario's started to go to daycare in the afternoons, but he hasn't been there much as he inevitably picks up some illness after being there a few days. I'm still teaching, but I've gone from feast to famine in the number of hours I'm working. Well, famine may be a bit strong, let's call it "weight watchers," as the servings have been unsatisfyingly small lately and look likely to get even more meager over the next months.

[I wrote this a couple of weeks ago, and things have actually surprisingly perked up lately- albeit things will be slim come June or so.]

This gives both an opportunity, as well as a necessity to go job hunting. Carla's folks are still in the same house as us. In fact Carla's mom is already starting to find excuses not to move- meaning we'd have to move into the house that was chosen and decorated for them. Honestly, my guess is that it won't come to that. Carla's mom prefers to decide as little as possible, thus allowing her [the right] to complain about everything everyone else decided. [Update: In theory they move out next weekend- but Carla's mom is still complaining of course...]

The Devil's take on Youtube

[1st line continues from previous post]
Yeah. Ready to move on.

I forget why, but I was thinking about [the usage of] swear words on the internet- I believe it was Eugene who made a comment about not being a big fan in general of cyber-cussing. And I agree, in fact here I will cuss with great caution. Still, it's quite funny really. If, out of the millions of explosively offensive things on the internet you get offended because I drop an F-bomb or two in this space, well, that would seem odd. And yet, being offended by such language would be neither terribly uncommon or inappropriate. Such is the beauty of the written word that it has managed to maintain its purity and power even when floating adrift in the vast sea of filth (and not) that is the interwebs.
My favorite line from my favorite book is a short one: "Manuscripts don't burn." It was a doubly ironic line because both the author who penned it and the character being told this line had indeed burned manuscripts, and quite successfully at that (both to

avoid Stalin-era Russian censors). Both authors were afraid of the consequences their writings might bring. And yet, with some help from others, the words of the authors came to light- in the book the Devil himself recreates and publishes the book, whereas the book of the flesh-and-blood author only came to light [initially in censored form] some 25 years after the author's death. So now I put thse words out into the evanescent web of ether. I'm not so sure the Devil (the speaker of the aforementioned line in the book) would make a similar insinuation about the immortality of this medium. But what do I know? The interet gives me one of those feelings that feel wrong and hollow. At first glance, it feels quite permanent, but anyone who ever lost their data on their hard drive can tell you that a pile of 0's and 1's are easy to lose. I think that the illusion of permanence may be related to the novelty of the internet, and how revolutionary it has been in that short time. A kind of "THIS IS THE FUTURE!"-type feeling. [Never trust a message in all caps with exclamation points- the internet taught me this.]
Uh, perhaps I should just keep my suppositions of what the devil thinks to myself. Probably a good general rule.