First, I need to clear the air on an issue that is cited over and over, of which causes me great discomfort. In last Thursday’s Financial Times, Robert Pollin and Michael Ash, the two professors who sponsored graduate student Thomas Herndon of UMass-Amherst–and of recent fame for finding the flaws in Rogoff/Reinhart–published the article heard round the world: “Why Reinhart and Rogoff are wrong about austerity.” I am not disputing the results of their work but I am questioning a causal relationship that they note:
Posts Tagged ‘Italy’
Mario Monti upset the Italian credit markets as he announced his early resignation over the weekend. In an apparent fit of rage after Silvio Berlusconi (aka Captain Viagra) pulled his political support from the sitting prime minister, Mario Monti headed off to the opera in Milan and apparently he was the fat lady that sang. It was a Wagner Opera that Mr. Monti saw so it seems that the political drama playing out in Rome is going to be a long, drawn out affair. I believe that the present Italian PM played a political gambit by announcing his early resignation in an effort to reveal the markets lack of support for the return of Berlusconi. As the Italian bond markets sold off and yields on 10- and TWO-YEAR NOTES increased by more than 25 basis points. It seems that there is little support from the financial markets for a return to the buffoonery of a Berlusconi-led government.
Due to the availability of virility enhancers, the Italian political arena is plagued by billionaires who still believe they remain relevant. The ability to sustain an erection does not make you politically astute. Today’s effort by Silvio Berlusconi to undermine the Monti government led to a selloff in the Italian debt markets which caused 10-year rates to rise 13 basis points. Mr. Berlusconi didn’t want to bring the present government down but merely wanted to exhibit his relevance to the Italian political establishment. What the Greek debt problems couldn’t do, a 76-year-old man with a bottle of Viagra was able to accomplish. Elections are going to be held soon and the Monti coalition will be called to account. Now with all the problems confronting the peripheral governments the attempts of a disgraced former prime minister to prove his manhood is just an exhibition of the absurd. Pay no attention to the man with unnatural bulge in his ego.
The key policy maker who raised the issue of the fiscal cliff back in April 2012 has been missing in action from the discussion. It is widely understood that the FED is not supposed to involve itself with fiscal policy, but that proposition was violated when the FED chairman voiced great concern about the failure of Congress to halt the potential drag on the economy. The FED has continually supplied the liquidity as the “only game in town” but it seems obvious that the great enabler of Congressional “benign neglect” should offer some guidance while not overstepping its mandate. More members of the G-20 were out over the weekend warning about the potential disastrous effects of a fiscal calamity in the U.S. on a very fragile global economy. What will it be Ben? I say yes, you say no. Bonds say buy and stocks say sell. Congress says goodbye. Will the FED say hello?
The loser in Brussels was … FRANCE. The markets were giddy as they drank deep from the KOOL AID spring of separating BANK AND SOVEREIGN SOLVENCY … did this really occur? It is far too early to tell. For all the “PUNDITS” it seems that Chancellor Merkel has capitulated to the needs of Spain and Italy as France cheered on the brinkmanship of Mario Monti. The French, led by President Hollande, has now ended the 50-year-old policy of Gaullism as France will no longer be deemed a responsible partner for Germany as being the mainstay of Europe.
Notes From Underground: A Visit to February 5 (Sometimes A Reminder Is Necessary To Clear The Stain Of Bad Execution)March 15, 2012
The world is carrying on in its design of vast pools of liquidity in a “sea of tranquility” … for the moment. Are Europe’s problems solved as the FRENCH ROOSTER Nicholas Sarkozy has crowed? Absolutely not. The travails of debt plagued economies will begin for the nations living on the IBERIAN PENINSULA. As I have argued for a long time in this BLOG, Spain is a far worse problem then Italy but Italian BONDS suffered as they were the only FUTURES HEDGE AVAILABLE FOR THE PROBLEMS OF THE GIIPS.
The unemployment numbers were much as expected and the most solid news was that the employment participation rate increased to 63.9% to 63.7%, which didn’t cause the overall jobless rate to increase. It has been discussed in this BLOG that the best news for the financial markets would be for job growth to pick up, with an uptick in the UNEMPLOYMENT RATE AS WORKERS RETURN TO THE JOBS POOL AS A SIGN OF IMPROVED CONFIDENCE. This number provided some of that but still not enough returnees to bump the rate higher for the higher rate will make the FED‘s FOMC January 25 statement that much more relevant.
Today, IMF MANAGING DIRECTOR CHRISTINE LAGARDE announced that she would try to raise more capital to shore up the IMF‘s balance sheet as to be able to aid the peripheral nations of the European Union. Ms. Lagarde was going to approach the members of the G-20 to provide additional funds to prevent a further assault on the European sovereign debt by securing funds to support the troubled sovereigns. The IMF director will be depending on the BRICS and Japan to increase their contributions so as the IMF may actually be able to help GREECE and PORTUGAL meet immediate funding needs and let the ECB and EFSF do the heavy lifting for Spain and Italy. (At this time, the U.S. said they will not be contributing.)
This morning the Bank of Canada (BOC) voted to keep rates steady as 1% as Governor Mark Carney voiced concern over the troubling situation in Europe. The BOC noted that weakness in the EUROPEAN ECONOMY could spread as more austerity is applied to the profligate peripheries. The Canadians are in a difficult situation as the growth in household debt is growing because of continued low rates and this is causing angst with economic policy makers. Finance Minister Flaherty noted that the Canadian government may have to find other ways to halt the increase in household borrowing. I am not a fan of Mr. Flaherty but it is nice to see a government actually thinking ahead of the problem and looking for ways to “LEAN AGAINST THE WIND.”