Wherever The United States Is Going Financially, Italy Will Get There First

Many times we have reviewed the dire financial and economic conditions of the United States:

1. Recently, the national debt of the Federal government exceeded $15 TRILLION. In order to pay off this debt, every American household would have to kick in about $130,000 worth of their own household wealth.
2. The $15 TRILLION debt is likely the first time in our country's history that the Federal national debt was greater than our annual Gross Domestic Product.
3. Our national debt has almost doubled since the Democratic Party took control of the U.S.Congress in 2006 and the annual spending deficits under the Obama administration are still alarmingly high today and are expected to be the same into the near future.
4. The Obama administration has incurred more debt than ALL other Presidents from George Washington through the second Clinton term COMBINED.
5. The U.S. annual growth rate has been less than 3% for years now and shows no sign that economic growth will get more robust any time soon.
6. The Obama administration has burdened the economy with thousands and thousands of new regulations in the past three years.
7. The Obama administration has heavy-handedly interfered in the private sector, hassling companies (e.g. Gibson Guitar, Boeing, etc.) for no legitimate reasons other than to support their union and other political allies.
8. The Obama administration has unsuccessfully interfered in the energy segment of the economy, loaning and wasting hundreds of millions of dollars of taxpayer money in such failed business ventures as Solyndra.
9. The Obama administration has tried to juice the economy by investing in infrastructure projects under the economic stimulus program. However, the funds were not spent efficiently, e.g. an Associated Press investigative report that found half of the nation's bridges "repaired" using stimulus dollars were in absolutely no need of repair.
10. While the country suffers severe economic pains, the political class in Washington continues to enjoy outstanding compensation and benefits and have the additional benefit of participating in insider stock trading ventures that are closed out to most other Americans, surely a corruptible practice.

That is where we stand today, a very, very dangerous financial predicament. But no one in the White House or Congress seems to care, most are focused on their own careers, personal enrichment, and reelection campaigns. Maybe they should take a look where Italy stands today from an economic perspective since wherever the United States is going economically, Italy is likely to already be there.

But first, some background. Italy is the third largest economy among those European countries that use the Euro as their currency. Greece and Spain, other, much smaller economic Euro countries have been in the headlines for months and months, given their dire financial situations. Both countries had rung up huge national debt levels and are now in such bad financial shape that the rest of the Euro countries have been busy putting together bailout and austerity measures for both countries to protect the Euro's viability.

However, more recently we learned that Italy is in no better shape than Greece and Spain and given their ranking as the third largest country, a default of Italian bonds and government debt would certainly sow economic havoc in Europe, on the Euro concept, and elsewhere in the world including the United States.

According to an article in the November 14, 2011 issue of Business Week, in the past twelve months interest on Italy's two year bonds as grown from about 2% to over 7%. This is a reflection on how dire the market views Italy's bad economic situation, resulting in a distressingly high level of debt interest that is not sustainable over more than a short period of time.

But the 7% is not the really scary part of this sad economic condition. Other information from the article shows an eerily similarity to the U.S. economic conditions under the Obama administration listed above (the comparable points made above are listed after each of the quotes from the Business Week article):

• "Over the past 15 years, Italy's economy has expanded an average of .9% annually, half the European average." - Similar to point 5 in the list above, the United States has had meager economic growth for the past three years, no sustained, robust  economic growth is expected in the near future, and our growth has trailed many other countries (China, Brazil, India, etc.) by a substantial amount.
• "Without growth, Italy can't pay down its debt, which stands at 119 percent of gross domestic product." Similar to points 1, 2, 3, and 4 above. At $15 TRILLION, the U.S. debt to GDP ratio is already over 100%, currently at about 103%. However, if the Obama administration and Congress keep adding to the national debt as expected by current budget forecasts, we should hit the Italy crisis ratio of 119% in about two short years.
• "Still, (Italian) productivity has been stifled by overregulation, rigid labor rules, and a government role in industries such as energy." Similar conditions exist in the U.S. as pointed out in points 6, 7, and 8 above.
• "The government has tried to juice the economy by investing n infrastructure and education - only to have benefits siphoned off by corruption." Eerily similar to point 9 above.
• "Italy's state auditor says cases of corruption and bribery increased 30% last year." Seems like political class corruption is a world wide event, including both Italy and in this country (see point 10 above.)

Seems like a true statement, wherever the U.S. is going from a financial disaster perspective, Italy will already be there and waiting for us.

That is unless Italy actually gets its act together. The Business Week article discusses the fact that Italy recently installed new political leadership in its government, dumping long time leader, Prime Minister Silvio Berlusconi, who has presided over much of this financial mess in Italy. This is an attempt to reverse course by installing new leadership.

As the country struggles to install new government leadership though, the chairman of the Italian Senate Finance Committee does not sound very optimistic: "Which government, with what wide majority, will be able to implement in a few days the structural reforms that we haven't been able to implement in the last ten years?"

This is where we still have a chance, maybe a two year window before we get as hopeless as this Italian Senator. We can begin by dumping out all incumbents next November, from President Obama to all members of Congress, incumbents that got us into this financial mess. Einstein once said: "We cannot solve our problems with the same thinking we used when we created them." We also cannot solve them using the same people that created them.

Unless we purge in November, we may all end speaking Italian when we catch up to the Italians two or three years down the road when we also arrive in financial Armageddon.



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