Since the global economic crisis began in 2008, Italy’s GDP has declined by about 8%, nearly a million workers have lost their jobs, and real wages have come under increasing pressure. The most striking aspect of Italy’s recent turmoil is what has not happened: citizens have not poured into the streets demanding reform. Indeed, throughout the crisis, Italian society has remained uncharacteristically stable. Japan’s experience – characterized by more than 20 years of economic stagnation – offers important lessons for crisis-stricken democratic countries with aging populations. During Japan’s “lost decades,” successive Japanese governments allowed public debt to skyrocket and refused to confront the economy’s deep-rooted problems, allowing sclerosis to take hold. In fact, Japan’s leaders had little incentive to pursue bold reform, because voters consistently failed to demand it. The question now is what kind of shock would be required to motivate Italians to demand similar action.
Today, the Italian Senate will vote at 8:30 PM whether to formally expel the 76-year old former prime minister, Sylvio Berlusconi. Concurrently, the winner of three of the six Italian elections in the past 20 days will launch a delayed nationwide address on his political future. The contents of said address are unclear however, as Reuters reports, "political sources and local media said he would not use the address to torpedo the fragile left-right governing coalition of centre-left Prime Minister Enrico Letta - at least for now - despite weeks of threats to do so." Furthermore, as WSJ adds, citing a column in daily newspaper Il Fatto Quotidiano, Marco Travaglio noted that Mr. Berlusconi came in third in the February vote but managed to pick the head of state, the prime minister and the government program. "Given all that, it would be crazy to trigger a crisis," observed Mr. Travaglio, a longtime critic of Mr. Berlusconi. That said, and as is well-known, the media magnate is highly unpredictable and in the past has made several versions of video announcements so he can choose one only at the last minute. However, no matter the content, what is most curious is that the vote, the Berlusconi expulsion vote and nationwide address, as well as the Bernanke press conference, which is also due at 2:30pm Eastern, will all coincide.
The (G)Reekovery, in which unemployment just rose to a new record high, must be so strong that the economy can easily afford another two days of lost output as virtually all public sector workers have decided to take another two day break from a grueling work schedule (one in which they used to get a week off for just using a computer) and go on strike. From WSJ: "Greek public servants began a two-day walkout Wednesday over plans to place government workers in a labor reserve that is widely seen as a step toward future layoffs. Teachers, hospital doctors and court officials, among others, participated in the walkout, leaving schools, courts and government offices closed across the country and hospitals operating on skeleton staff. On the streets of Athens, public sector unionists staged two separate demonstrations that brought about 10,000 protesters to the streets, according to police estimates."
A very soon tomorrow will bring the decision of the Fed concerning tapering into focus. Ok, a kind of fuzzy, hard to see and wispy focus. The one thing that we can assure you of is that whatever is to come our way it will not be a singular event. You will hear from the imbibers of Cool Aid and other mischievous reality altering drinks that it could be a one-off event. Tomorrow a process will be started, it will probably go in fits and starts but do not blind yourself; it will be the beginning of the journey to cut back on the propping up of the markets by the Fed.
European recovery propaganda may be humming (for the latest proof see today's German ZEW sentiment index which soared from 42.0 to 49.0 matching the all time high in the Dax), but when it comes to the actual economy - that place where commerce is conducted and where supply and demand curves intersect, the situation has never been worse. And not only unemployment which is at a persistently record high for the Eurozone, but actual transactions, in this case in the form of car sales. As AP reports, for the first eight months of the year, passenger car sales in the European Union were off 5.2% to 7.84 million compared with the same period last year, the European Auto Manufacturers' Association said Tuesday. That's the lowest January-August figure since the group started keeping track in 1990.
- Less Tapering Becomes Tightening Credit No Matter What Fed Says (BBG)
- Yellen Is Now Top Fed Hopeful (WSJ)
- Syria - A chemical crime, a complex reaction (Reuters)
- More ECB collateral: Wrecked cruise ship Costa Concordia raised off rocks in Italy (Reuters)
- Aging Boomers Befuddle Marketers Eying $15 Trillion Prize (BBG)
- Abe Turns Pitchman, Says Japan Is Now A Buy (WSJ)
- Ex-JPMorgan Employees Indicted Over $6.2 Billion Loss (BBG)
- Barack Obama blinked first in battle for Lawrence Summers (FT)
- Berlusconi to support Italian government in video message: sources (Reuters)
- How China Lost Its Mojo: One Town's Story (WSJ)
For all complaints about painful, unprecedented (f)austerity, the PIIGS (even those with restructured debt such as Greece) sure have no problems raking up debt at a record pace. Over the weekend, Spanish Expansion reported that Spanish official debt (ignoring the contingent liabilities) just hit a new record. "The debt of the whole general government reached 942.8 billion euros in the second quarter, representing an increase of 17.1% compared to the same period last year. Debt to GDP of 92.2% exceeds the limit set by the government for 2013..." Moments ago, it was Italy's turn to show that with employment still plunging, the only thing rising in Europe is total debt. From Reuters, which cites a draft Treasury document it just obtained: "Italy's public debt will rise next year to a new record of 132.2 percent of output, up from a previous forecast of 129.0 percent."
It had become clear that the President's own political base in the Senate were not going to support Mr. Summer's ascendancy. The eye of the Press will now turn to Mr. Kohn, Ms. Yellen, who does not seem to have the support of Mr. Obama, and the long, though interesting shot, of Stanley Fischer. Mr. Obama appears to be easing into a lame duck presidency far earlier than once thought and the reality of Obamacare will hit Main Street on October 1 which may tip the scales further out of his control. It may not be either the best of times or the worst of times but very volatile times that mark this week.
Five years after the collapse of Lehman Brothers triggered the largest global financial crisis since the Great Depression, outsize banking sectors have left economies shattered in Ireland, Iceland, and Cyprus. Banks in Italy, Spain, and elsewhere are not lending enough. China’s credit binge is turning into a bust. In short, the world’s financial system remains dangerous and dysfunctional. Worse, despite years of debate, no consensus about the nature of the financial system’s problems – much less how to fix them – has emerged. And that appears to reflect the banks’ political power. Unfortunately, despite the enormous harm from the financial crisis, little has changed in the politics of banking. Too many politicians and regulators put their own interests and those of “their” banks ahead of their duty to protect taxpayers and citizens. We must demand better.
Portuguese and Italian sovereign bond spreads have risen for four weeks in a row now (with Portugal +29bps this week alone and near 2013 wides) but the close today was unusual in its agression. Portugal had been blowing wider since yesterday, but minutes before the close today, Spain and Italy were slammed higher in yield/spread and lower in price (BMPS unwinding?) Of course European stocks didn't care - Greece up 5.6% on the week, Spain +3.3%, Italy +3%... "fixed"
This is the first consecutive monthly drop in 14 months and the largest miss vs expectations on record. Printing at 76.8 (against an expectation of 82.0), this is the lowest in 5 months and points to the picture we have been painting of a consumer increasingly affected by rising rates and soaring gas prices amid stagnant incomes. As Citi notes below, this is the exact same pattern we have seen play out in the last 2 cycles and suggest significant downside risk to US equities. The economic outlook sub-index collapsed to its lowest since January.
Sept. 11, 2013, marked the anniversary of the attack on the U.S. Consulate in Benghazi, Libya, that left four U.S. diplomatic employees - including Ambassador Chris Stevens - dead. The anniversary saw new attacks in the eastern Libyan city, this one against a Libyan Foreign Ministry building (and this morning's awful attack in Afghanistan). The anniversary and recent attacks prompt a look at how the security situation in Benghazi has evolved over the past year, and at how the United States has tackled security issues worldwide since the consulate attack.
Following Barroso's State of the EU speech, we thought it useful to reflect on the true state of the EU. Nigel Farage's recent tirade slamming "Communist" Barroso's pro-bureaucrat policies are poignant as he exclaims the "disaster" that the EU has become for the poor and unemployed. To further color this rant we note Charles Gavekal's recent note on why Europe's still broken as worthless IOUs are 'transferred' around the union and "no one really knows who is going to take the final loss." Perhaps it is The Hamiltonian's summary of the structural problem (an interlocking set of European political, bureaucratic, media, academic and financial elites) and the sad fact that history suggests a crisis deferred is a crisis magnified.
While Spain is the European nation making all the headlines with regard its housing market collapse, Italy has quietly been experiencing its own decline. As Bloomberg notes, however, Italy shows no sign of stopping as falling prices may not be enough to stem a decline in Italian home purchases as the country's biggest group of buyers - those aged 30 to 40 - is set to shrink until the end of the decade. As the chart below indicates, housing transactions have followed the growth and contraction of this important 'buyers group' as it has plunged by more than 1 million people since 2005 (and is set to drop to only 8.3 million by 2020) and prices are set to follow. Of course, officials proclaim that prices have dropped enough to trigger a rise in purchases (for the first time since 2006); but, this runs counter to the more-than-decade-long demographic trend. But apart from that, Europe is recovering...
Ex-ECB insider Lorenzo Bini-Smaghi has once again proved that conspiracy 'theory' in the new normal is the same a conspiracy 'fact'. As The Telegraph's Ambrose Evans-Pritchard notes, Bini-Smaghi's new book details Silvio Berlusconi seriously floated plans to pull Italy out of the euro in October/November 2011, precipitating his immediate removal from office and decapitation by EMU policy gendarmes. Specifically, he discussed (threatened?) Italian withdrawal from the euro in private meetings with other EMU governments, presumably with Chancellor Angela Merkel and France's Nicolas Sarkozy. Bini-0Smaghi's tell-all goes further, noting that Merkel continued to think that Greece could be thrown out of the euro safely as late as the early autumn of 2012. It appears - just as we have always believed - that all is not well under the surface in Europe and that Dragji is in charge.