This past weekend, you saw the stunning return to power of the man who dominated Italian business and politics for literally decades. After a hiatus since the Global Financial Crisis, Former Italian Prime Minister Silvio Berlusconi is back in a big way. His party and its candidates have stormed their way to power in several important mayoral contests in the wealthy industrial northern heartland of the country.

It just goes to show you that after nearly a decade of reformist-minded governments in this critical G7 nation (that is so indicative of everything wrong with the developed world), nothing has really changed at all. The man responsible for overseeing much of the mess that is present-day Italy is now every bit as popular in the polls as the populist party and the (for the moment) governing party headed by former Italian Prime Minister Matteo Renzi.

The Return of Former Italian PM Silvio Berlusconi A Sign of Everything Wrong In Italy, Europe, and the World

It appears that the old adage, “The more things change, the more they stay the same” is appropriate for Italy nowadays. Analysts were convinced that Italy and the world had seen the last of Berlusconi at long last, but it turned out to not be the case once again. In the last round of the key municipal elections for Italy that took place on Sunday, the 80 year old long-time prime minister proved that the name for his own party, the Forza Italia, is justified.

Berlusconi Photo Courtesy of Spiegel Online

His candidates led in the underway vote count in the important cities of Genoa and Verona, two of the industrial heartland cities of the north. Either Forza Italia or the anti-European Union Northern League is tipped to have also won Sesto San Giovanni, the city located close to Milan and called “Italy’s Stalingrad” thanks to its historically powerful voter connections to the left. In Parma, one of the independent candidates led. Political Science Professor Roberto D’ Alimonte of Rome’s Luiss University stated:

“A victory for Berlusconi’s candidate in some or most of the main cities could certainly have a short term impact. It remains to be seen what use Berlusconi and his allies will make of that at a national level.”

This mayoral poll was the first real-world test of the frustrated and angry voter mood in the nation where unemployment remains stubbornly high, any economic recovery is weak at best, and both anti-immigration and anti-European feelings are powerful and rising. It explains how Berlusconi’s resurgent party and allies (the Northern League) can command approximately 30 percent in the national polls, approximately the same amount as both anti-Euro party the Five Star Movement of former comedian Beppe Grillo and the incumbent Democratic Party of both Renzi and Prime Minister Gentiloni.

It is much more than a substantial blow to current Prime Minister Paolo Gentiloni and his ruling PD Democratic Party. Four million voters (of 111 towns and cities) who were eligible to participate in the microcosm for the national elections slated for first half 2018 proved they are serious about revolting against the centrist and reformist party that has valiantly attempted to fix the countless problems with present-day Italy. There are so many of these issues now, it is hard to know where to begin.

Italy’s Banking System is a Catastrophe

For starters, the important Italian banking system is bankrupt (and much of it on more than simply paper).  This past weekend, the national government had no choice but to pass an emergency set of measures (decrees) to bail out two collapsing banks of the northern Veneto area to the tune of $19 billion (17 billion euros). These are the biggest banking rescues ever in history for Italy, though they will likely not be the last. This past week’s financial institution victims were Banca Popolare di Vicenza and Veneto Banca, two of the most problematic regional area lenders.

Italy is selling the good assets to rival regional bank Intesa Sanpaolo for a token price. Yet they are not transferring the toxic loans and other assets to them in this strangely skewed deal. Instead, these are being pooled into a toxic bank that will be funded by the Italian national government mostly. The senior creditors will be made whole in the arrangement, though junior bondholders and stock shareholders will be making “contributions” to the rescue. This is only one instance of many pending Italian bank failures too, as this chart below indicates:

The real losers in this arrangement are the usual victims— the Italian taxpayers, who are likely on the hook for $11.1 billion (10 billion euros) out of the deal. Understandably, they are sick of more of the same old tired, failed policies that have not managed to solve Italy’s monumental problems. It is also a body blow to the already limited credibility of the euro zone financial regulation and hoped-for European Banking Union.

These promised that in the wake of the financial and sovereign debt crises, taxpayers contributions to bank rescues would be limited. All of the lenders in the euro zone were supposed to be subject to a unified, consistent, and transparent body of rules and regulations. So much for that idea.

Instead, Italy will simply bypass the new institution of the European Union Single Resolution Board that was created to deal with any such banking failures according to an orderly winding down resolution process. They will also sidestep the new “Banking Recovery and Resolution Directive” that was drawn up to be the one and only rule book for the euro zone banks crises’ resolutions. This move will clearly spare the Italian investor bondholders at the expense of irreversibly damaging the new European institutions’ credibility.

Italy is Merely A Microcosm for the Massive Financial and Banking Problems Facing Europe and the Developed World

Italy is a tragic example of the worst possible policies on handling years of mismanaged banks, yet it should not be singled out alone for criticism. Only two weeks ago, the Spanish government orchestrated its own shotgun wedding between largest global Spanish bank Banco Santander and Banco Popular in an effort to stop the toxic bank failures.

In this case, which analysts and European governments applauded as a model for such banking debacles, Santander picked up the good, bad, and ugly assets of Popular for only a euro. In other words, they took the most dangerous and potentially ruinous toxic assets possible (not to mention legal risks in the future) from a failed Banco Popular and tied them to the mostly strong and healthy balance sheet of globally and systemically “too big to fail” banking giant Santander.

This is nothing to applaud or admire. Instead it is something at which you should shake your head in bewilderment, as the panicking governments of the world desperately try to find the means of keeping the failing global banks and banking systems up and running at whatever cost. In truth, there probably are no longer enough financial reserves left in the developed world to bailout all of the failing or already-failed on paper banks and the (resulting) similarly troubled sovereign governments. It might be a good time to learn how to invest in gold.

Total Gold Reserves on Earth Are Not Even Enough to Cover the Bank and Resulting Sovereign Failures

Certainly there is not enough gold available on earth to cover all of the present and potential bank and sovereign failures. The total 170,000 tons of gold unearthed so far in all of human history equates to a mere $20 trillion. Italy’s banking problems alone are estimated to require as much as a half trillion dollars. If the government of Italy is taken down by the toxic loans it has backed, you are talking about an over trillion and a half dollar economy. This is only one nation with potentially enormous problems that could easily surpass $2 trillion in costs.

This does not take into consideration the over $20 trillion in Federal Government debt the United States can never hope to repay. Suffice it to say that there is not nearly enough gold on earth to go around for all of the toxic bank debts and sovereign debts and failures. You had better get some of the yellow metal now while it is still cheap. Gold offers protection and insurance during market turbulence. It explains why you need a Gold IRA.

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