Notes From Underground: When Will We See The Full Monti?

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.

MONTI makes himself the most viable candidate to deal with Italy’s current problems since the markets have shown contempt for Captain V. Remember, Monti was not elected by the Italians but was “parachuted in” by the Eurocrats in Brussels to help right the troubled ship of state. By Mario Monti playing the tragic figure in the Berlusconi Opera he stands to win the public’s sympathy. The Italian bonds may have been hammered today but the fact that the EURO CURRENCY held steady in the face of such political uncertainty reveals that this is only the end of ACT I.

In a Der Spiegel Online  piece “Berlusconi Revival Puts EU Leaders In Tight Spot,” [Volkery and Wittrock], it was revealed that there is substantial bad blood between Silvio Berlusconi and the leaders of other EU countries. The French paper Liberation cited Berlusconi’s recent move as “The Mummy Returns” and others references to the zombie-like nature of Mr. Berlusconi. German Foreign Minister Westerwelle lamented that Berlusconi would “…cause turbulence not just for Italy, but also for Europe.” The Euro elite is certainly bothered by the destabilizing impact of a resurgent Berlusconi so it will be a media storm of anti-Silvio rhetoric for the next two months.

The Berlusconi-owned newspaper has not been with clean hands though as there have been photos of Chancellor Merkel in Nazi uniform and the caption of the “Fourth Reich.” In another piece of anti-Monti propaganda, a cartoon appeared in IL GIORNALE depicting Mario Monti crawling on his knees to greet the German Chancellor. For years Mr. Berlusconi poked fun at the physical looks of Frau Merkel, but as we have seen it has not prevented him from having a hard on for her. Just when Europe was moving off the front pages Italy heads towards the “political cliff.”

***Wednesday is, of course, the day the FOMC announces its interest rate intentions. I will have more to say tomorrow but it will be wise to not get too far ahead of Chairman Bernanke and initiate large positions. The “fiscal cliff” was the parlance of the Fed Chairman back in April so with a press conference following the FOMC release, Bernanke will be questioned about his views and his answers can certainly move markets. It will also be of great interest to hear if there is anything about the fiscal crisis in the FOMC statement. That will of course be doubtful but any hint and the market’s reaction would be volatile. Again, Chairman Bernanke is a ’37 er and the “fiscal cliff” is a redo of the Andrew Mellon fiscal response so dreaded by the academic Ben Bernanke.

***Today, Governor Mervyn King of the BOE was speaking in New York and openly raised the issue that many countries were trying to weaken their CURRENCIES. The BOE‘s leader was upset that many of the G-20’s previous agreements to rebalance current account deficits and surpluses were not being followed and policies being put into place were having the opposite effect. Now that Mr.King is retiring, he raised the spectre that in 2013 ” … what we will see is the growth of actively managed exchange rates as an alternative to domestic monetary policy.”

The problem with the criticism is that Brazil and other G-20 nations maintain that U.K., U.S. and European monetary policy is merely an attempt to flood the global markets with liquidity and drive the POUND, SWISS FRANC, YEN and DOLLAR lower. The new year portends increased volatility in the global markets as the DEVELOPED NATIONS institute policies to counteract budget austerity. When the Governor of the Bank of England echoes the sentiments of the Brazilian Finance Minister … chaos must be on the way.



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4 Responses to “Notes From Underground: When Will We See The Full Monti?”

  1. danderose Says:

    Professor Harris, another great piece! Italy is most certainly a mess but I struggle to understand whether Captain V is the problem or just the largest manifestation of a lopsided though floating ship. It isn’t his fault the eurocrats are forcing Europe into a political bear hug no matter the economic cost. Maybe if the euro made economic sense he would be squelched and that tight jacket of a currency would reveal itself for the glory it can bestow on a population. If only he weren’t the only politician in search of a balcony in Europe. Now, if only they could find an Alexander Hamilton…

    Great find on the King speech as well. I suggest we all brush up on the impossible trinity. A managed exchange rate won’t be free…

  2. yra Says:

    Danderose–thanks for the nice words–tonight we will relook at the 1937er in its glory

  3. kevinwaspi Says:

    If we believe any part of the Bloomberg piece (See ) will become reality Wednesday, the opera in Italy will only be the opening act to the real three-ring-circus. As a true 37er, Ben just can’t stand taking second place in the “great race to the bottom”. Gentlemen, supercharge your engines!

  4. yra Says:

    Professor–you are a man of PRAXIS

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