Italian Crisis: Banking Cartel Addicted to Bailouts

The Economist proposes that Italy is in a better place than Greece in terms of debt.

According to the Economist

FEARS over the safety of Italy's government debt would take the euro-zone crisis to a new phase: for its members a choice between breaking up the project and sanctioning big transfers from healthy economies to struggling ones; for banks a question of how to manage exposure to the world's third-largest bond market. When Italian spreads over German bunds ballooned at the end of last week and kept moving in the same direction on July 11th and the morning of July 12th, it looked like that moment of panic had arrived. Markets have since calmed down a little and rightly so, according to this chart, which ranks countries by their debt burdens. But until markets get a clear signal from European governments that they are willing to do whatever it takes to stand behind the euro, the gyrations will continue.

I think the issue of the debt crisis represents a camouflage to what is truly at work here.

To me, the Italian (or the Greek) crisis is no more than an extension of saving the scalp of the badly pummeled European Central Bank sponsored banking (cartel) system.

From Bloomberg,

French banks, including BNP Paribas SA and Credit Agricole SA (ACA), have the most at risk from the euro- region’s debt crisis infecting Europe’s largest borrower: Italy.

At the end of 2010, French banks carried $392.6 billion in Italian government and private debt, according to data from Basel, Switzerland-based Bank for International Settlements. That’s the most for financial institutions from any foreign country and more than double held by German lenders.

At the end of the day, the ECB will ride to rescue the cartel, despite the current rhetorical differences, which has reportedly been the kernel of the current financial turmoil at the Eurozone.

That’s what central banks had been established for. And that’s what they’ll do as they have previously done in the US or in Greece.

And the US will likewise participate indirectly via the IMF and or through foreign currency swaps and or via another asset purchasing program (Quantitative Easing) that would possibly channel money through the Eurodollar market to the stricken banking system as with QE 2.0.

And this is why gold has now been trading at $1572+ as of this writing (kitco.com). And this is likely why gold prices seems likely to make another milestone breakout to set a fresh nominal record highs pretty soon.