The Italian Job: How Borrowing And Printing Lead To An Economic Dead End

Tyler Durden's picture

Submitted by David Stockman via Contra Corner blog,

Earlier this week Bloomberg published a devastating chart showing real hourly wage growth for the first 60 months of every cycle going back to 1949.  The 11 cycle average gain was 9% and the largest was 19% a half century back.

Fast forward to the 60 months of ZIRP and QE since the Great Recession officially ended in June 2009, however, and you get a drastically different picture: Real hourly wages have risen by just 0.5%, and in the great scheme of things that’s a rounding error.

Surely the above chart is also flat-out proof that massive money printing doesn’t work. After all, reflating wages, jobs and incomes is what the monetary politburo claims it’s all about. Indeed, the Fed has insouciantly cast a blind eye to the massive bubbles building everywhere in the financial system, and has kept money market rates relentlessly at zero for six years running on the grounds that it is not yet done “stimulating” the labor market.

So why does this abysmally failed and dangerous experiment continue unabated—as Yellen will undoubtedly confirm at Jackson Hole?  Self-evidently, it is irresistibly convenient to both Wall Street and Washington. The former gorges on a massive diet of carry trade gambling windfalls thanks to ZIRP and the Greenspan/Bernanke/Yellen “put”; and the latter gets a fiscal get-out-of-jail-free card owing to the Fed’s massive repression of interest rates. Indeed, with the public debt now topping $17.7 trillion, the implicit (and fraudulent) debt service relief from current ultra-low interest rates amounts to upwards of $500 billion per year.

Stated differently, where there should be extreme caution on Wall Street, there is actually irrational exuberance beyond Alan Greenspan’s wildest imagination back in December 1996. And where there should be fiscal panic in Washington owing to prospective red ink of another $15 trillion over the next decade (under “un-rosy scenario”), there is unmitigated and universal complacency.

The evil of monetary central planning, of course, is exactly what is unfolding: it drastically distorts pricing signals and thereby sows the seeds of eventual financial correction shocks and the consequent economic disorder. But there is something else, and its worse. Namely, the addiction to money printing and artificial debt fueled stimulus has become so deeply entrenched in the Wall Street-Washington corridor that the mainstream narrative has lost any semblance of historical perspective and realistic appreciation of the dead-end path on which the system is now embarked.

The monumental extent of monetary expansion and debt accretion since the turn of the 21st Century, for example, goes unrecognized, and is assumed to be merely a permanent and sustainable feature of the financial landscape. And that blindness might even be understandable had it been accompanied by an unusual surge of prosperity of the “party now, pay later” variety.  In fact, however, the core metrics of prosperity——real GDP growth, breadwinner employment, investment in productive assets and real household incomes—-have all gone in the opposite direction, having fallen drastically below all historical norms.

The contrasts below are dispositive. Real GDP growth during the last 14 years has averaged only 1.8%—-barely half the average rate during the prior 50 years. Likewise, breadwinner jobs are still 5% below their turn of the century level; real net investment in plant and equipment is 20% below its late 1990s levels; and real median household income is down by 5%.

Breadwinner Economy - Click to enlarge

Breadwinner Economy – Click to enlarge

Net Real Domestic Business Investment

Net Real Domestic Business Investment

The juxtaposition of these baleful trends with the metrics of debt and money need no elaboration. If we could borrow and print our way to prosperity the graphs below would be the road maps. Since the turn of the century, the Fed’s balance sheet has expanded by 10X; total credit market debt outstanding has risen by $30 trillion; and the Federal debt has soared by 3X.

Yet these screaming juxtapositions are lost in the recency bias of the mainstream narrative. Invariably, the “in-coming” data is tortured and rationalized to prove that just a few more doses of money and debt will do the trick. Consequently, the pattern and signal is obscured amidst the immediate noise.

It is therefore perhaps useful to consider a more advanced case of this Keynesian debauch from elsewhere in the world. Consider Italy. Despite all the arm-waving about the fact that the ECB has not gone to outright QE, there can be no doubt that money and debt in Europe have been flowing freely since the late 1990s and the official launch of the Euro. And as might well be expected, dramatically cheaper carry costs on the public debt have not helped Italy overcome its post-war propensity for outsized national debt.

As shown below, Italy’s public debt now stands at a debilitating 135% of GDP, representing what amounts to an incremental debt burden of more than $500 billion just since the year 2000 when public debt first crossed the 100% of GDP threshold.


Needless to say, massive fiscal stimulus and the ECBs ultra-low interest rates for most of this past 14 years have not produced the promised growth and prosperity. In fact, Italy’s macro-economy has plunged into a shocking secular decline. Real household consumption, for example, has now retraced all the way back to 1998 levels.

The same pattern is evident in Italy’s overall GDP trends—-their flawed basis which counts government spending as “growth” not withstanding. Since 2005, Italy’s GDP has spent nearly as many quarters in negative territory as in positive. Consequently, its actual level of real GDP has now lapsed back to levels reached 14 years ago.

Put in broader historical perspective, and straining out the short-term noise, Italy’s 10-year  moving average real GDP growth trend tells the true story. After 14 years of unprecedented debt expansion and cheap ECB  finance, Italy’s rolling GDP growth trend has plunged from 4% to negative 0.5% in the most recent observation. Yet there has never been a hint in the Keynesian playbook that actual secular shrinkage of this stunning magnitude is even possible.

Add to that Italy’s negative demographics and you have an absolute and irremediable debt trap. Were George W. Bush an economist, he might even aver that “this sucker is going down”.

Delay the work force demographics for a decade or two and you have a sobering projection of where our politicians and Keynesian money printers are taking the US economy. And that destination is most definitely not the land of permanent full-employment prosperity that is embedded in today’s mainstream narrative.

Note: Italian graphs from Edward Hugh at Euro Watch

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SoberOne's picture

Yeah, I see them just giving in and saying "Keynesian economics does not work, sorry."

svayambhu108's picture

Blowjob is a job where you blow blow ?

Publicus's picture

Borrowing is the key, stop borrowing, simply print out of thin air, and you will solve all debt problems.

pods's picture

That's why there ain't no crackhead Hall of Fame.


TBT or not TBT's picture

I liked the "...add that to Italy's demographics and.." placed near the end.   Their demographics would be even worse without the influx of third world immigrants and their higher birth rates.  

Italy will no longer be Italian going forward.   No caffeine fueled busy genius and bambini everywhere.   That's mostly history.  

Herd Redirection Committee's picture

The Sunk Cost Fallacy is how politicians sell their idiocy/ineptitude/corruption/cronyism to the public.

"Oh well, even though there are cost overruns, and the project will end up higher than budgeted  we still have to continue with the $4b project, because we've already spent $1b."

Actually, thats how you waste $3b.

The gov't (and Fed) won't change course, because of the political momentum i.e. "You idiots were wrong for years, so resign at best, go to jail, at worst".  Not to mention triggering those nasty interest rate swaps.

philipat's picture

Why not just consider Japan? More obvious. Krugman should be sent there.

r00t61's picture

I'd like to know if these charts take into account Italy's large black market.  I have seen estimates that place the black market economy of Italy at anywhere from 25-40% of "official" government GDP numbers.

This is one of the primary reasons why Italy decided to include "black market" adjustments into its GDP calculations.

Of course, I don't see how anyone can claim to know how much any black market is worth, otherwise by definition it wouldn't be a black market anymore. 

GDP numbers have been tortured so much over the years by so many, they'd confess to anything. 

Stuck on Zero's picture

Everyone blames the Fed but it is not just the Fed that is exhibiting destructive behavior.  So is the FDA, NSA, HEW, DoD, EPA, courts, your local school board, your town council, and every organization in the country.  What gives?

philipat's picture

Um......let me hazard a guess that everything is totally corrupt and broken in this fascist paradise??

Kirk2NCC1701's picture

Here "The Italian Job" means:  "We promise we won't come in your wallet, nor make any deposits in your bank account"

LawsofPhysics's picture

" some moment in the not too distant future."  Could you be a bit more specific?

alexcojones's picture

Jackson HOLE?

Andrew Jackson warned about Central Bankers.

   "Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, I will rout you out.”

     -From the original minutes of the Philadelphia bankers sent to meet with President Jackson February 1834,

I Killed The Bank ~ President Andrew Jackson: U.S
max2205's picture

Ah, well, the bankers took care of his ass didn't they

Herd Redirection Committee's picture

Its funny, because if you go back (to the history books), they blame the depression during Van Buren's presidency on Jackson (and his policies)!

Rather than just saying "it was a depression relative to a crack-up fiat money boom".

p00k1e's picture

"One of the very difficult parts of the decision I made on the financial crisis was to use hardworking people's money to help prevent there to be a crisis."


--George W. Bush, Washington, D.C., Jan. 12, 2009

LawsofPhysics's picture

Well, it is very important that your puppet isn't smarter than you...

JustObserving's picture

Indeed, with the public debt now topping $17.7 trillion, the implicit (and fraudulent) debt service relief from current ultra-low interest rates amounts to upwards of $500 billion per year.

Let's not forget unfunded liabilities of at least $130 trillion ($1,260,000 per taxpayer) and growing at $7 trillion a year ($70,000 per taxpayer per year).

Kotlikoff has unfunded liabilities at $244 trillion today.

shovelhead's picture

Pretty soon that's gonna add up to some real money.

clade7's picture

Oh piss!  I clicked on here in the hopes of seeing some Adriatic olive skinned hottie giving a hummer...

shovelhead's picture

Will you settle for Eric Holder giving America a hand job?

shovelhead's picture

Will you settle for Eric Holder giving America a hand job?

Lumberjack's picture

2nd big wind farm in Italy investigated for alleged organized crime & corruption (In Italian)


--------Part I translated using google:


Another area that is warm to say the least of Energy. After the investigation of the king of wind power in Sicily, Vito Nicastri, suspected by the DIA to be close to the clan of Matteo Messina Denaro, in 2011 has raised a fuss for the arrest of the deputy regional Gaspare Vitrano of the Democratic Party, accused by a contractor to have taken a bribe for oiling practices in the field of alternative energy and his colleague API, Mario Bonomo. The process is in progress, but what has emerged from an internal report commissioned by the then commissioner Joshua Marino is the office that handled the paperwork for the photovoltaic and wind was out of control. There was a protocol to establish the order of questions, some files were missing and it was not clear what criteria were convened conferences of service to give the green light or not questions that were worth, in terms of repayments by State on the energy bill, millions of euro: wind power plants are currently in operation to 1,746 megawatts and turnover estimated at twenty years amounted to 6.6 billion euro. These days is a second investigation into alleged bribes and favors for a wind farm in Monreale: under investigation for corruption the former commissioner for Industry Pippo Gianni, currently deputy of the newborn Covenant of democratic former Minister Salvatore Cardinale, and some officials by Martin Russo, currently deputy chief of staff alderman cultural Heritage and the director Francesca Marcena, which for years has conducted the interim office permissions energy. 

But officials moved and then put back in their place is full also the Territory environment, other department "hot" in terms of bribes and corruption are over last week arrested an official, Gianfranco Cannova, and four entrepreneurs in the field of landfills, including entrepreneurs and Giuseppe Domenico Proto Antonlioli. Cannova, from the papers of the investigation, despite his status as a civil servant seems to have a key role in the issuance of environmental permits. But the leaders of his service that have taken place over the years, I really have not noticed anything ever? Disturbing in this regard, the sentences of the current general manager Gaetano Gullo: "I became suspicious when I saw some of Cannova deputies come in Department to speak directly with him, which was a mere official."

------For more background and connection to this administration, see this:

Joe Tierney's picture

Fed moniker:




p00k1e's picture

Hooray!  Perhaps Chrysler Peeps will make it back to U.S. shores just in time for us to re-bailout their pension funds.


Not to mention, this also explains the drop in gold, ‘fine’ Italian suits are getting cheaper.

Rusty Shorts's picture

It's all Italian Jobs.

Pay Back The Money!!!


Published on Aug 21, 2014


THIS is the new South Africa and the way business should be done with every parliament worldwide. Julius Malema and the EFF take no shit from the speaker of the house, or the president in thief, Jakes Zuma. Chaos ensues. A cautionary tale.

jubber's picture

ironically Italian rates hit a new ATL today

PontifexMaximus's picture

They will even go lower, MD will take care of it!

lasvegaspersona's picture

Debt is easily (if painfully) resolved. In reality it is just numbers on paper. There is a loss of claims on real things for someone but otherwise it is just a game.

Italy will be fine. I'm betting no one starves and they keep having sex. Fast cars...maybe not so many.

PeeramidIdeologies's picture

I've seen it written here countless times; Past results are not indicative of future performance.

You can compare statistics of years gone by all day, but it fails to take into account the complete arsenal of applicable instruments in use here.
Take debt for example. Do you believe that an economy can operate whilst smothered in low/negative interest debt?
The answer is yes is can. All of this debt is an excellent instrument of control. It is the shackles of the digital age. Do you think TPTB care if they have to write off a few billion every year? A worth while exchange IMO if it provides them an increase in leverage to further impoverish the population.

Isn't life grand?

Lumberjack's picture

More here:

And here:

Lots more as this is a very big story, i have a shitload in comments there too. this is going back to Enron. Working on it...

Jack Burton's picture

" Real hourly wages have risen by just 0.5%, and in the great scheme of things that’s a rounding error."

Indeed! And when you take that wage gain and factor in skyrocketing taxes, health insurance, dental care, car and house insurance, food and fuel. Factor it in and what you get is the shift of millions of people into deep poverty. It's that simple. Wages are not keeping up with core or anyother measure of inflation.

Health Care alone is bankrupting people whose wages either keep falling or at best treat water. My last job as an employee was from 2000-2006 and over that period wage gains were tiny and did not cover inflation, my real disposable inflation adjusted income was heading down, down, down, nowhere but down. I suspect many middle class workers were in the same boat. As for the poor, who are on minimum wage, well, really, at that level? Why even work? It is a useless exercise to work for that kind of wage, fake injury or illness and go for disasbility. Why not, millions and millions can't be all wrong.

JR's picture

Good post. With a government whose advantage is to show economic improvement in the country but whose commitment to providing truthful statistics is zero, individual Americans are not aware of how their fellow countrymen are surviving the economic crisis.

Since Americans now have lost their connection to their political leaders because the lobbyists purchased them away and the media is totally in the tank for the banker-corporate takeover, each American can only judge for himself what he’s up against.

In other words, millions of Americans – those who’ve lost their homes, or their good jobs, or the equity in their homes, or the purchasing power of their savings, or their corporate pensions, or their Social Security purchasing power, or the many Silicon Valley engineers who've had no raises in several years, or those whose children cannot find jobs after college or high school – are blacked out of the official economic picture. The media says we’re in a recovery. And people who are working two jobs with no raises? Nobody’s reporting on them; you don’t hear about them!

Where is the politician who cares about these people; where is the media story that describes their plight, where is Fed policy that addresses their needs?  They do not exist.

What happened to the money that was taken from them? Oh wait; it’s in the hands of the bankers and the stock market.

Raoul_Luke's picture

"(T)his abysmally failed and dangerous experiment continue(s)" unabated because if it doesn't the whole big government is affordable scam comes crashing down on our heads...

Lumberjack's picture

More here from a friend:

RE: Cause for concern about the security of the Port of New Bedford with MACEC oversight

Dear Representative Straus:

Thank you for your due diligence and for expressing concerns about management of the New Bedford Marine Commerce Terminal by Mass Clean Energy Center (MACEC) as reported by South Coast Today [8/12/14] in Questions raised about South Terminal management credentials

By Ariel Wittenberg
August 12, 2014 12:30 AM


[ Rep. William Straus, D-Mattapoisett, who chairs the Joint Committee on Transportation] Straus said in an interview with The Standard-Times that he would prefer the Department of Transportation or the Harbor Development Commission manage South Terminal and that he is concerned that MassCEC does not have experience managing a port facility. Straus said he is worried MassCEC is too focused on securing contracts for shipments of wind turbine components, to the exclusion of other types of cargo.

Boston Business Journal Editor in Chief Jon Chesto informs that Ports America of NJ has expressed interest in running "our" $100 million dollar New Bedford terminal according to Mass Clean Energy Center MACEC chief Barton.

I have independently "vetted" Ports America , while apparently, based on public announcement published in Boston Biz Journal, MACEC has not. Ports America's most powerful employee on the docks, the Hiring Agent who controls who works on the docks, an associate of the Genovese crime family, “by clear and convincing evidence”, has been stripped of his license by the Waterfront Commission.

Ports America Hiring Agent Removed from Waterfront for Associating with Members of the Genovese Family
September 18, 2012
Ports America Hiring Agent Pasquale Pontoriero ‘s license was revoked by unanimous Commission vote today. After a 14 month hearing, an Administrative Law Judge found that the Commission had proved “by clear and convincing evidence” all of the charges against Pontoriero. Pontoriero had been charged in an Amended Notice of Hearing with associating with Genovese Capo Tino Fiumara and Genovese soldier Stephen DePiro; both of who were also career offenders and convicted racketeers. Pontoriero was also found by the Administrative Law Judge to lack the good character and integrity required for a Hiring Agent. The Administrative Law Judge recommended that Pontoriero’s license as a Hiring Agent be revoked. The Commission agreed with his findings and recommendation.
Fiumara died in September of 2010; DePiro is currently serving a federal prison sentence and awaiting trial on federal racketeering charges involving the extortion of ILA members in the Port.

A copy of the Administrative Judge’s Report is attached:

A direct link to the Administrative Judge's Report provided by the Waterfront Commission-
The fact that Ports America is under consideration by MACEC chief Barton to run the Port of New Bedford, appears to me to validate your concerns about the competency of MACEC to have oversight over our critical, and seemingly vulnerable port. As Ports America Hiring Agent has by the Administrative Judge's Report been confirmed associated with the Genovese crime family that the FBI identifies involved with the international trafficking of heroin, there should be an urgent call for better security of our ports in context with renewable energy entities and operations under management by MACEC.

Moreover, the evidence that I have gathered as a private citizen by following the money in the MA renewable sector, and that I have diligently put into MA government record, should alarm any and every Public Official in the State of Massachusetts:

JR's picture

It’s called the Great Train Robbery. If you have income in the US you can be on the charted blue line – the “real” income advance headed for nowhere.

If you don’t have income you are on the charted red line – stuck on “nominal” 2000 sliding back hill fast.

Either way income is charted, real or nominal, Fed monetary policy is plunder, robbing the currency of its essential property of an exchange-medium. The well-being of most Americans is at the mercy of a few schemers, their productivity divorced from the value of their currency.

Proof? Red line nominal household income (not adjusted for inflation) from 2000 to June-2014 went from $40, 804 to $53,391. Blue line real household income (inflation-adjusted value using the Consumer Price Index) from 2000 to mid-2014 went from $57,288 to $53,391.

That is a 32.1% nominal growth rate in your income check – what you see. But adjusted-for-inflation it’s a -5.9% loss in purchasing power – what you don’t see subtracted your income reality.

Sadly, if you retired on an income of $40,804 in 2000 and your income has remained the same in the 21st century, the purchasing power of your income, because of ZIRP and inflation, now buys $13,000 less than it did in 2000. It’s down 32.1%. If part of that $40,804 was in savings interest income, hit hard by Fed ZIRP, don’t even think about your losses.

So, how does your household stack up. Doug Short has the comparison between then and now.

Regarding “real” incomes adjusted for inflation, Short writes:

“The stunning reality illustrated here is that the real median household income series spent most of the first nine years of the 21st century struggling slightly below its purchasing power at the turn of the century. … The June 2014 real median annual income is 6.6% below our turn-of-the-century starting point and 7.2% below its 21st century high in January 2008. Note, however, that the Sentier calculations are based on pre-tax data. The expiration of the 2% FICA tax cut in December of 2012 put an additional hit on disposable incomes, especially for those household on tight budgets.

“…As the excellent data from Sentier Research makes clear, the mainstream U.S. household was struggling before the Great Recession. At this point, real household incomes are in worse shape than they were four years ago when the recession ended.

“… Also, be sure to download Sentier Research's latest report (PDF), which includes an overlay of real household income and the monthly unemployment rate. Highly recommended!”

End the Fed. Money created out of nothing is forthcoming in abundance for war and Wall Street but not for the peaceful development of the country and its people.

p00k1e's picture

So is this the reason why when we finally save up 100K to buy a house, the house will now cost 175K? 

JR's picture

Exactly! The tragic part is those people who save for college and it just gets farther and farther away.

"Since 1985, the overall consumer price index has risen 115% while the college education inflation rate has risen nearly 500%."—Steve Odland, Forbes, 3/24/2012
shovelhead's picture

Dontcha want good jobs at good wages?

gadzooks's picture

If the insane culted beltway freaks aren`t  doing nothing ,let them, atleast the`re not making it worst.


Frankly Speaking's picture

"So why does this abysmally failed and dangerous experiment continue unabated"

Jeez, It's always this endless debate over how the fed actions are or are not stimulating the economy. People, the fed is not there to stimulate the economy. The fed was created by the banks- for the banks. It is there to stimulate the banks and has done so for years under virtual free money for them. The banks have endless non or underperforming loans which can only be saved with near zero. Never mind the gaping holes in the balance sheet on inventories of foreign bonds, not marked to market. These banksters will continue to rob the savers until they are sufficiently recapitalized.

This is simply an ongoing bank bailout.

If you wish to believe otherwise you may as well let the scorpion jump on your back and start swimming.

shovelhead's picture

I didn't hear anyone with credibility arguing that.

Did you?

Frankly Speaking's picture

PS If the banks can not recapitalize soon enough with zero rates, they have already conspired to steal the depositor money anyways. It's called a bail in.

daveO's picture

After the next scheduled melt down when Yellen reafirms Tapering. They can no longer steal using just inflation.  

Irishcyclist's picture

Yesterday Frau Merkel was giving out about Italy's lack of fiscal rectitude.

Julian's picture

"Surely the above chart is also flat-out proof that massive money printing doesn’t work" Um no because whats the counterfactual?  What would have been the result without this money printing? -20%?  Im not saying money printing is a good thing but the chart is not proof as the article suggests. Let's use our brains people!