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Stupid question about Italy debt
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Stupid question about Italy debt

  #1 (permalink)
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Stupid question about Italy debt

Its in the news, Italy cant pay their debts, but why cant they raise the debt ceiling like what US done this year?

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  #2 (permalink)
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Its in the news, Italy cant pay their debts, but why cant they raise the debt ceiling like what US done this year?

You posted this in the wrong forum but anyway raising a debt ceiling doesn't accomplish anything. What they would like to do is print money and they can't. Think of them as if they were a state like Illinois for example. At some point nobody wants to buy thier bonds and they can't print they are screwed until someone who can print money like the federal goverment bails them out(the fed can print money).
In the case of Italy the ECB is not allowed to print money so they have to steal it from someone else. In reality they come up with ideas like Euro bonds and that kind of stuff to raise cash to give to Italy ( or Greece....) I guess what I'm trying to say is they need cash and raising a debt ceiling generates no cash. That's it in a nutshell.

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  #3 (permalink)
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tellytub View Post
Its in the news, Italy cant pay their debts, but why cant they raise the debt ceiling like what US done this year?

The US can create new money buy selling bonds. This increases money supply and will create inflation in the longer run.
Inflation does not scare investors as much as an insolvency.

Italy will need to sell bonds as well, but as they cannot use the Euro to reduce their debt via inflation, there is an increased likelyhood of an insolvency during the next years. This scares off investors.

If you cannot generate inflation, you will pay the price for your bad budget discipline in the short term. If you can generate inflation as the US and UK, you will pay the price for your bad budget discipline later.

As politicians prefer to pay the price for their wrongdoings later, inflation is the remedy of choice ....

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