Bernanke has made Italy a guinea pig of financial future

Bernanke verbal action on QEs will remain only verbal and in fact almost nothing will be changed. This is clear for everyone that understands basic financial principles and looks at the government budget. But it looks as Bernanke speaking will hit some of the weaker parts of the world financial system.

Rumors of Italy going again to the risk of needing a bailout appeared as Italian bonds interest rates started again to rise. This is a logical consequence of Bernanke comments that created an expectation of withdrawing the stimulus that led to cashing some of the investments in government bonds. And as expected, this has hit exactly the bonds of the countries that most need money and lower interests.

So it looks as using the only left tool for Bernanke to influence the markets – the verbal interventions, is to make problems of other countries. But these problems mark what will happen to the bonds of bigger countries (like USA) if really QEs go to end. And this is the answer of the question if this will really happen.

The QEs are much more complex policy than is presented to the public. They are a tool not only for stimulating the economy, but a major source for financing the government deficit. And as the deficit of the White House is very big and is a constant one, so it’s impossible to stop printing money. The proven in history method of solving such problems is the money devaluation and the inflation tax.

Italy is one of the most problematic countries in EU with a debt of more than 120% of GDP. It was saved by a money-print blow by European Central Bank. Anyway FED is still the biggest central bank in the world, so its policy can affect even countries under other currencies. So Italy is a good guinea pig for the future of USA debt and dollar management.

June 25th 2013

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