Mario Draghi just took over as the new President of the ECB and as his first act in office Draghi lowered the ECB's benchmark interest rate by 0.25% to 1.25%. The ECB's interest rate of 1.25%, while not quite as low as the Fed Funds Rate of 0% to 0.25%, is still very inflationary.
Unfortunately for Greece, their bond yields have been skyrocketing and they have been finding it difficult to raise money on their own. Greece is now in need of additional rescue funds. In July of 2011, after Greece's two year bond yield rose as high as 40.46%, European leaders negotiated in Brussels a deal to provide Greece with a new bailout of €109 billion in rescue loans.
In late-October, European leaders abandoned their proposal from July and announced a new shocking bailout plan for Greece. Not only did they agree to give Greece new rescue funding of €130 billion, but in an additional part of the agreement, banks holding Greek bonds have agreed to accept a 50% haircut on the money they are owed by Greece.
Papandreou's proposed referendum infuriated leaders of Germany and France, who expressed their frustrations with Papandreou and threatened to pull the plug on the bailout deal. Greek bond investors once again panicked, sending the two year yield all the way up to a new high of 107.26%.
NIA believes that the best decision for Greece and its citizens would be to turn down the new bailout deal and declare bankruptcy.
Greece would be best off leaving the euro zone and creating its own fiat currency.The bailouts are doing nothing to help the citizens of Greece; they are only helping the German and French banks that recklessly purchased Greek bonds at artificially low interest rates.If Greece declares bankruptcy, the country won't self-destruct.
All of their infrastructure will still exist, but their debts will be eliminated and Greek citizens will enjoy a higher standard of living.
The U.S. debt crisis is even worse than Greece, but the U.S. has a printing press that it will use to pay back China, Japan, and our other creditors, which will steal the remaining purchasing power of American citizens who don't have their savings in gold and silver.
Even though Italy's debt to GDP ratio is 120%, the second highest out of euro zone countries behind Greece, Italy's budget deficit as a percentage of GDP is among the lowest in the euro zone at only 3.9%.
The U.S. has no chance of ever balancing its budget and will likely see its deficit explode to new highs in the years ahead. Italy, on the other hand, could realistically balance its budget if it implements reform measures to cut spending.
Although a 10 year bond yield for Italy above 6% may be a new high for the Euro-era, Italy's 10 year bond yield averaged well above 6% for many decades before the euro zone was created. Italy made a major mistake by joining the euro zone. Before joining the euro zone, Italy was able to survive even when their 10 year yield reached a high of 13.75% in 1995.
Many investors selling Italian bonds are now buying German bonds, because Germany has a low debt to GDP ratio and one of the world's largest manufacturing bases. German 10 year bond yields are now 1.78%, a record 488 basis points below Italy.
As bad as things are in Europe today, with the media making it seem like Euro Armageddon is fast approaching, you would expect the Euro to currently be collapsing on a daily basis.