Wednesday, November 9, 2011

Italy could be a much bigger problem than Greece (then, Spain); "demographic winter?"

Nick Thompson of CNN has a sobering article “Has Italy Passed the Point of No Return?”  He gives a good explanation of bond yields and sovereign debt.  Silvio Berlusconi will step down once the government can agree on austerity measures enough to convince investors to let Italy borrow at a reasonable rate, less than 7%.

Italy’s economy is about 7 times the size of Greece, and a default would have a severe effect on the entire global financial system.  401K’s in the US could be hit much harder than with Greece.
The CNN link is here

To put it bluntly, many of Italy's problems are demographic: not enough children (despite parenthood subsidies), retirement ages that are too early, pension commitments that are too big.  A warning for the US?  This problem will follow the entire developed world.

The US Dow fell almost 400 points today, over 3%.

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