Italian Politics in the Spotlight

European shares are rebounding after a two-day decline; dollar is mostly higher in G10. Italian politics remains front and center ahead of budget vote; UK outlook remains sluggish. With US calendar light, markets likely to focus on Fed speakers; China’s selective easing policy

Italy’s Political Drama: Tuesday Climax?

Assuming that the Greek and Italian political situation stabilize, the focus may shift back to the Iberia. The risk is that the new Spanish government will report a larger budget deficit and weaker finances in general than the outgoing government has recognized. Spain has three bond and four bill auctions before year-end.

Portugal needs to approve the 2012 budget and this will require acknowledgement that it is missing this year’s targets. While the euro zone as a whole only now looks to be entering a recession, the Portuguese economy contracted in both Q1 and Q2 and is likely to have contracted in Q3, when the preliminary data is reported on Nov 14. The Portuguese economy contracted in 2008 and 2009 before expanding last year. This year the contraction has resumed. The consensus forecasts calls for continued contraction in 2012 and 2013.

Such a bleak economic outlook does not appear conducive to political stability, let alone stabilizing debt situation and reassuring investors. If investors have been asked to “voluntarily” asked to forgive half of what Greece owes and accept a lower coupon, what will private sector investors in Portugal be asked to forgive

What George Papandreou is listening to now that he’s won the no-confidence vote in Greece

Now it’s on to a Greek coalition government with the FinMin at the helm. Get ready for more austerity!!

The euro zone is coming apart at the seams now, redux

This is an update of a post I wrote at the beginning of September about European political dysfunction

Bill Black: Hijacking protests for political gain

The special interest most people are concerned about are the banks. In the banking sector, fraud was a major contributor to the crisis. Because the White House has not prosecuted these frauds, bankers in general are now denounced as ‘banksters’ as if all bankers are complicit in this fraud. Black says the biggest victims of these frauds and the lack of prosecution other than homeowners are all of the honest people in financial services. I agree

Watch Italy

The problems Italy faces may have deeper roots than simply the current prime minister. It is not clear that the opposition offers a significantly different agenda rather than different personalities.

ECB bond buying of Italian debt began in early August and pushed 10-year yields sharply lower, but only for about two weeks. The 10-year yield has risen steadily since dipping below 5% and today is near 5.75%, with a few basis points of its highest since ECB action began. Italy is planning to sell bonds tomorrow. Italy has a heavy supply schedule over the next several months. On the other hand, Italy’s 5-year CDS prices hit their lowest level (~409 bp) yesterday since early Sept. The risk is on the upside

China currency bill is about US politics, not trade

Below is a video of my appearance on RT International last night discussing the recent bill to authorise sanctions against the Chinese for currency manipulation. I see this bill as all about the politics and little about the economics

China Bill: Huff, Puff and Bluff

US national elections are 13 months away and not coincidentally, the Congress is looking at a new measures to encourage China to re-value the yuan. While there is little doubt that the yuan in under-valued, though reasonable people may differ on the magnitude, politics more than economics appears to be the driving force

Treason?

If you believed the Republican leaders, you would say this is reckless monetary policy aimed specifically at supporting President Obama, a Democrat. You saw the last post I wrote, with the court scene from “A Few Good Men” tacked on. Boehner, Cantor, McConnell and Kyl would have you believe that Ben Bernanke is the misguided and dangerous Jack Nicholson character and they are the Tom Cruise character, trying to get him to admit to his crimes.

Is Bernanke ‘almost treasonous’ then, as Rick Perry has said he is?

Here’s my take

Munchau: ‘we are moving closer towards an involuntary break-up’

I want to highlight three things here from Wolfgang Munchau on the euro zone because he reaches conclusions I have reached. Below are excerpts of what Munchau writes about a Greek default, Italian solvency and euro zone dissolution

Why didn’t the Fed release a statement on the dollar liquidity bailout?

The Fed feels politically constrained due to its own machinations in the past and the likelihood it will engage in a muscular easing policy if and when the US economy double dips. It does not want to come under attack for this Euro bank activity

Pension and Ponzi Schemes

In the US, there is a heated debate about America’s government pension scheme Social Security. The Republican frontrunner for President Rick Perry has called it a ‘Ponzi scheme’, for which he was derided by the previous Republican frontrunner Mitt Romney. Here’s the question: is Rick Perry right. Is social security a Ponzi scheme?

Here’s my take