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Is Super Mario Printing Already?


“Italy’s borrowing costs have spiked higher towards levels that forced Greece, Ireland and Portugal to be bailed out. The yield on Italy’s ten-year bond is up another 0.32 percentage point at 6.43 percent, a new euro-era high. A yield above 7 percent is widely thought to be unsustainable….

What’s particularly concerning is that Italy’s borrowing costs have spiked higher, even though the European Central Bank has been buying the country’s bonds in secondary markets in an attempt to keep the yields down.”

“Italian Debt Fears Hit Markets After IMF Invite”, NPR,  November 4, 2011  

Well, that didn’t take long.

The European Central Bank’s (ECB) new president, Mario Draghi, has been in office for less than a week and already he’s got the printing presses running at full-tilt. Go figure? Draghi–who also served as a managing director for the “vampire squid” (G-Sax)–has promised repeatedly to focus laserlike on “price stability” following in the tradition of his predecessor Jean-Claude Trichet who famously said, “The ECB has only one needle on its compass, and that is inflation.”

Inflation, inflation inflation, that’s all that matters to the ECB, that is, unless its shifty bank buddies are in trouble, then all bets are off. Then the ECB will provide “unlimited” liquidity to prop up the Potemkin banking system and make sure that folks don’t get the crazy idea that the banks are grossly undercapitalized and loaded with non performing loans, plunging sovereign bonds and other assorted junk paper that might fetch just pennies on the dollar at any of the eurozone’s many flea markets.

So, what happened on Friday, you ask?

Well, what happened was the leaders at the G-20 meeting in Cannes couldn’t agree on whether to boost the IMF’s resources or not, even though the IMF will need the extra money to keep Europe from imploding. That news sent Italian bond yields into the stratosphere making a default in Italy all the more probable. And–as has been widely reported–if Italy’s $1.9 trillion bond market craters, then it’s “game over” for the eurozone. So,  who stepped into the breach and reversed the trend by loading up on Italian sovereign debt even though he promised he would not expand the bond buying program?

I’m guessing it was Super Mario, that’s who; only his effort seems to have failed miserably as this chart from zero hedge indicates.

So, what’s wrong with the ECB acting as central banks do and backstopping the individual states?

Nothing at all. In fact, the ECB is doing exactly what it should be doing if–and this is a BIG “if”–if its actions are approved by a democratically-elected government and not a bunch of rapacious, sleazebag banksters whose only interest is expanding their powerbase while they transfer more public money into their own pockets. That’s when the “lender of last resort” provision becomes a problem. So, it’s a question of legitimacy, right? Draghi has about as much legitimacy as Henry Paulson, Jon Corzine, Lloyd Blankfein, or any of the other Goldman chiselers, which is to say, none at all.

Even so, by the end of Friday we expect that Draghi will set aside principle, promises and other commitments and do what we would expect from a G-Sax operative acting in the greater interests of the Global Bank Alliance; print like madman to stop the bleeding. Here’s a clip from an article in Bloomberg:

“European Central Bank President Mario Draghi signaled he’d rather use interest rates than the printing press to bolster growth as the debt crisis drags the euro-area economy toward recession.

Chairing his first policy meeting after succeeding Jean-Claude Trichet on Nov. 1, Draghi unexpectedly cut the benchmark rate yesterday by a quarter point to 1.25 percent and left the door open to a further move. At the same time, he ruled out ramping up ECB bond buying to reduce governments’ borrowing costs, saying the program is “temporary” and “limited.”

“It’s back to basics on the crisis fighting; rates rather than bond purchases,” said Julian Callow, chief European economist at Barclays Capital in London. (“Draghi Chooses Rates Over Printing Press as Recession Looms”, Bloomberg)

“Back to basics”, eh? Well, we should know by the end of the Friday whether Bloomberg is right or not. If they are right, then you can bet I’ll be feasting on crow this evening.

Like Greece and the other faltering members of the EU’s Debtors Prison, Italy has already surrendered its sovereignty to its overlords in Brussels. Check out this blurb from Friday’s New York Times:

“Acceding to pressure from European leaders, Italy “invited” the International Monetary Fund to look over Rome’s shoulder to ensure it is carrying out reforms designed to keep the country from succumbing to Europe’s widening sovereign debt crisis, European Union officials said Friday.

In an extraordinary move, Italy said it had invited the fund to scrutinize its books every three months to make sure a $75 billion dollar austerity package is carried out according to plan. A team from the European Commission will also travel to Rome next week to start monitoring Rome’s efforts, the president of the group, Jose Manuel Barroso said….

Yet, Prime Minister Silvio Berlusconi’s shaky coalition government is having trouble implementing a number of painful austerity measures passed recently to reduce the nation’s deficit and its mountain of debt, which is the second highest in the euro zone after Greece.” (“Italy Agrees to Allow I.M.F. to Monitor Its Progress on Debt”, New York Times)

Get the picture? Sovereignty is a thing of the past in the eurozone, just like democracy is on its last legs. The banks have extended their tentacles into every corner while working people are being fitted for a structural adjustment straitjacket that will allow financial vultures to swoop down and scavenge public assets while stomping out the labor movement with a Size 12 jackboot. Welcome to EU Banktopia, neoliberalism’s new citadel on the continent.

Still, that doesn’t mean their strategy won’t hit a few speed bumps on the way. This is from Reuters:

“Banks including BNP Paribas and ING are ditching billions of euros of euro zone government bonds, cutting their exposure to the region’s trouble spots. More lenders are expected to retreat as the euro zone crisis deepens and leaders raise the possibility of the exit of Greece from the bloc, further damaging prices.

“The market value of the debt of the countries most under scrutiny is likely to decline further as banks unload sovereign bonds,” Charles Dallara, managing director of the Institute of International Finance, warned on Wednesday.” (“Bank exodus from euro zone sovereign debt quickens”, Reuters)

Rising yields on sovereign bonds are a de facto bank run which could lead to another crash. And there won’t be nearly enough money in the new EU emergency fund (EFSF) to pull Italy bank from the brink if the panic continues. The only institution with sufficient resources to reverse the trend is the ECB, which, according to Draghi, is opposed to the idea. He’d rather impose additional belt tightening measures on hard-hit deficit countries than let the ECB expand its balance sheet. But cutting spending during a slump only increases the misery, widens the deficits and pushes the eurozone deeper into recession. Here’s a clip from the Streetlight blog that explains:

“Austerity as a response to the recent rise in Italy’s borrowing costs is exactly the wrong policy prescription. It misdirects attention from the real problem here, which is the self-fulfilling doom spiral in the debt market that Italy has gotten trapped in. The only way to break out of this cycle is to do something radical to change market expectations….

Cuts in government spending will be overwhelmed by Italy’s higher borrowing costs, which are far, far greater in euro terms than any cuts in government spending that could realistically be achieved. And so Italy’s budget deficit will still rise sharply. And if we assume that severe austerity will likely lead to a contraction in Italian GDP, as it has done in the UK, Greece, and elsewhere, then the trajectory of Italy’s debt looks even worse with the cuts in government spending than it did without them.” (“Italy’s Future”, The Streetlight blog)

There is a way out of this mess if EU leaders choose to take it, but that’s not what they want. What they want is more austerity, more hairshirts, more fiscal consolidation, and more agonizing cutbacks to social services. They want to keep Greece, Italy and the rest, just barely breathing so they can strip-mine the country without triggering a full-blown meltdown. That’s what this austerity-thing is all about. It’s a gigantic looting operation conducted by the Financial Mafia. Do you need more proof? Just take a look at this clip from Draghi first press conference on Thursday:

“…all euro area governments need to show their inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole. The Governing Council ….. urges all governments to implement fully and as quickly as possible the measures necessary to achieve fiscal consolidation and sustainable pension systems, as well as to improve governance. The governments of countries under joint EU-IMF adjustment programmes and those of countries that are particularly vulnerable should stand ready to take any additional measures that become necessary.

…..The Governing Council therefore calls upon all euro area governments to accelerate, urgently, the implementation of substantial and comprehensive structural reforms. …. labour market reforms are essential and should focus on measures to remove rigidities and to enhance wage flexibility, so that wages and working conditions can be tailored to the specific needs of firms. …. These measures should be accompanied by structural reforms (and) the privatisation of services currently provided by the public sector. At the same time, the Governing Council stresses that it is absolutely imperative that euro area national authorities rapidly adopt and implement the measures announced and recommended in the Euro Summit statement of 26 October 2011.” (Press conference, Mario Draghi, President of the ECB)

Sound familiar? “Give us your money, destroy your unions, privatize your public assets, and follow our orders, or we’ll blow the place up.”

We have a name for that sort of thing, Mr. Draghi. It’s called terrorism.


MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at

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