Friday, July 29, 2011

Italian insider threatens Europe's greatest MPs' expenses scandal

By Michael Day

Italy's MPs, who are the highest paid in Europe, have been caught in a highly embarrassing expenses scandal that threatens to engulf the political classes.

As in many scandals, it is the little details that stick in the mind. During the British MPs' expenses furore, it was a Tory MP's claim for a wooden duck house; for Italians who are steadily working themselves into a fury over their MPs' expenses and salary gravy train, the piquant example concerns the parliamentary hairdressers – all nine of them – on €11,000 (£9,650) a month, each.

This example of the perks enjoyed by Italy's lawmakers is part of a stream of embarrassing disclosures from a disgruntled former parliament employee, calling himself Spider Truman, on a Facebook page entitled "The secrets of the society of Montecitorio", referring to the home of the Italian parliament.

Truman, who has been described as Italy's Julian Assange, also revealed how MPs' families and friends enjoy free flights through the parliamentary travel agency, benefit from reduced private tariffs from telephone companies, and can expect police escorts to cut a swathe through crowds when they or their families want to go shopping.

He has also claimed that many MPs report their computers and other expensive equipment stolen so as to fraudulently claim money for replacements.

Establishment critics of the blogger, described by the political gossip website Dagospia as an "ex-lackey", note that he – or she – has yet to name names, and clearly has an axe to grind after apparently being sacked from a parliamentary job.

The centre-left and its anti-corruption campaigners such as Antonio Di Pietro, so used to claiming the moral high ground in the face of dubious legal manoeuvres that appear designed to benefit premier Silvio Berlusconi, has made no comment about the revelations.

But the disclosures appear to be fuelling public contempt for politicians. Within 48 hours of its opening, the Facebook page had 250,000 members, many of whom have left rude and in some cases unprintable remarks about their parliamentary

Italian MPs sent themselves bogus death threats to qualify for protection

The claim – which has not been verified – is one of several assertions made by a former parliamentary official in Italy calling himself 'Spider Truman'.

A Facebook page he set up this week to protest against the lavish privileges enjoyed by Italian MPs – the highest paid in Europe – has attracted more than 350,000 followers.

The claims made in the Facebook page and a related blog have fuelled widespread indignation among Italians that their MPs continue to be handsomely rewarded when the rest of the country is being asked to tighten its belt, amid fears that Italy's huge public debt and static growth render it vulnerable to a Greek-style meltdown.

The Italian parliament last week passed a 48 billion euro austerity package which hit families hard but failed to erode the privileges enjoyed by MPs, who have an average annual salary of 140,000 euros - nearly twice the amount earned by British MPs.

In his blog, called "The Secrets of the Caste", Spider Truman claims that some of Italy's 945 MPs and senators falsely report personal items such as laptop computers stolen and then claim for them through a parliamentary insurance scheme.

He also claimed that members of the Senate and the Chamber of Deputies had sent themselves bogus death threats so that they could request an escort of armed bodyguards.

The 37-year-old whistleblower has refused to divulge his real name but said he worked in the lower house of parliament for 15 years before losing his job earlier this year.

In an online interview with Corriere della Sera, he claimed that six publishers had contacted him and asked him to write a book about what he knows.

Italian MPs' benefits include generous pensions, free flights and train travel and the use of a sports club on the banks of the River Tiber in Rome, complete with a swimming pool and tennis court.

They are entitled to subsidized haircuts from seven barbers working in the parliamentary hairdressers, as well as discounts on health care and complimentary theatre and cinema tickets.

They are chauffeured around in expensive Alfa Romeos and Maseratis with tinted windows, which are escorted by police motorcycle outriders and cut through traffic by attaching flashing blue lights to their roofs.

The Facebook page has been inundated with tens of thousands of comments welcoming the exposure of MPs' alleged profligacy.

One supporter said Italians should follow the example of Guy Fawkes and blow up parliament.

Another said that official cars were often abused by MPs' families.

"You just know there's an MP's wife inside who is going shopping or taking her kids to school." Another follower commented: "It's no longer the people who should be afraid of their government, it's the government that should be afraid of the people." Union leaders and the head of a powerful business federation have called on MPs to reduce their perks and show more accountability at a time when millions of Italians are being forced to make financial sacrifices.

The issue has spread to other social networking sites, with some Italians comparing the gulf between the ruling classes and ordinary people to that of pre-revolutionary France.

Many have referred to the revolts which have ripped through North Africa and the Middle East and called for an Italian equivalent of the Arab Spring.

Politicians avoid austerity, Italy enraged

Millions of Italians face tough sacrifices from an austerity package passed last week to stave off a financial crisis. But the country's rulers don't seem prepared to abandon La Dolce Vita.

The euro70 billion ($100 billion) package does not entail any significant reduction in the wages, perks and privileges of Italy's notoriously bloated, handsomely paid political elite, despite repeated promises such cuts would be carried out.

In fact, some measures that would have made politicians suffer were watered down in a last-minute, nighttime meeting of lawmakers.

Premier Silvio Berlusconi's flamboyant ways have grabbed most of the headlines, but Italians have long grumbled about the state-subsidized luxury lifestyles of their politicians. Now, at a time of belt-tightening, these privileges strike people as particularly odious.

"The increasing indifference of the political class to the country's problems is infuriating to people," said Sergio Rizzo, co-author of a hugely successful book called "The Caste," which exposed greed and corruption in the halls of power. "It is as if our politicians had reversed the order of priorities: first their own business, then ours."

A Facebook page called "The Secrets of the Caste of Montecitorio" — after the name of the building housing parliament's lower house — has drawn over 340,000 "likes" in just a few of days. Its author is anonymous, calls himself Spider Truman and is a self-described disgruntled former aide to an Italian lawmaker.

Influential Catholic magazine Famiglia Cristiana weighed in this week, lamenting that the political class was administering "bitter medicine" to the country but not to itself. "Politicians are not giving up one euro," it said.

Faced with the popular outrage, politicians of all stripes are now promising action. A minister in Berlusconi's government has proposed an ambitious constitutional reform, but that would take years to pass. The speakers of both houses of parliament have devised packages of cuts and promised swift implementation.

But similar promises in the past have gone unfulfilled.

"I'm not confident. They've said it many times before, they've never done it," said Franco Ferrari, a 67-year-old pensioner, speaking just outside parliament. "They have cut the pensions to poor people ... myself among them, while they keep up these privileges."

According to a recent study by the labor union UIL, some euro24.7 billion (about $35 billion) go every year into funding the political machine, which employs, directly or indirectly, some 1.3 million people. That means each Italian taxpayer contributes euro646 annually (about $910) to a system widely seen as failing the nation.

Lawmakers in the 630-member lower house of parliament make euro11,700 ($16,500) per month before taxes, plus some euro7,200 ($10,000) more to cover expenses or pay aides. Most of those expenses go largely unchecked, leaving the lawmakers free, for example, to pocket money intended for an aide. Plus they have free travel within Italy, be it by highway, plane or train, among other perks, and a generous pension system.

The overall compensation is not all that different from what lawmakers make in some of the biggest EU states. In France for example, the 577 deputies of the Assemblee Nationale earn euro7,100 ($10,000) pretax, but also have euro6,400 ($9,000) for other expenses, and funds of up to euro9,000 ($12,700) to pay aides.

What is enraging Italians is the perceived marriage of incompetent leadership with corruption and abuse of office. The country has been sickened by tales of state planes shuttling lawmakers to football matches, fancy restaurant lunches for which the taxpayer picks up the tab, inside access to luxurious real estate below market-price, or paid for by friends.

"We are not outraged because somebody, even a politician, makes a lot of money, but because there is no corresponding service provided to the community," said Rizzo.

To many critics, Berlusconi is the most egregious example of a political class intent on perpetuating its power rather than serving citizens. The Italian leader has passed measures critics say were meant to protect his business interests or safeguard him from prosecution in legal cases.

But corruption probes and books like "The Caste" — written by Rizzo and Gian Antonio Stella, both reporters at Corriere della Sera — suggest a greedy political machine at all levels. Recent investigations have targeted a former aide to the finance minister, who allegedly sought favors and presents from an industrialist, including a Ferrari. In another case, a Cabinet minister is under investigation for alleged Mafia ties.

There have been some small cuts in recent years. But, unlike everything else in Italian politics, resistance to significant reform has been bipartisan. For years, governments of all colors have promised to scrap local provincial administrations, both to save money and eliminate what is seen as a redundant body. But the provinces have not been touched.

Giulio Tremonti, the finance minister who devised the austerity plan, had warned his colleagues that politicians had to set the example if they were to be credible in demanding sacrifices of ordinary Italians.

The package originally did include measures to cut salaries, the number of chauffeured cars and other benefits, news reports said. But a group of lawmakers met between July 12-13 — just before parliamentary approval — and slashed the most significant reductions, saying the prestige of parliament needed to be safeguarded.

For example, chauffeured cars — currently 15,000 according to some estimates — were not reduced. Rather, it was decided that future cars should have smaller engines, according to newspaper La Repubblica.

For ordinary Italians, the austerity measures include increases in health care fees, cuts to tax breaks and high-end pensions, raises to the retirement age and public-sector salary freezes. The measures were rushed through parliament last week amid market jitters over Italy's financial stability. Some of these measures have already taken effect.

Debate over political privileges threatens to spill into a wider anger over how Italy's governed, says Rizzo.

"When the legitimacy of a political class to govern is called into question, then the very democratic system is called into question," he said. "It is a very dangerous fracture that can lead to any kind of reaction."

Morning markets:tour data protect wheat from market weakness


One of the intriguing farm commodity landmarks passed in the last session occurred in corn.
Chicago's December lot finished higher than the September contract. Which might not sound much, given that later contracts attracting a premium over nearer ones is the default state of affairs in farm commodities, to account for storage costs, risk, interest rates and the like.
However, in corn, the spread had been reversed for some time.
"September corn closed under December corn for the first time in almost a year," Mike Mawdsley at Market 1 said.
'Adequate stocks'
Very nearly a year indeed, with Benson Quinn Commodities tracing the inverse, which in April saw the September lot gain a 63.25-cent-a-bushel premium over December, back to the last week of last July.
Whatever, its reversal is not necessarily a bullish sign, especially for old crop contracts, with "some conversation amongst the trade see this as evidence of adequate stocks to carry end users to new crop".
And the September lot continued to mildly underperform the December lot, even if only by 0.5 cents, standing 1.5 cents lower at $6.80 ¾ a bushel as of 07:10 GMT (08:10 UK time). The December contract was 1.0 cents lower at $6.85 ¼ a bushel.
'More significant showers'
Indeed, both contracts continued to be damned by weather which continued to show reduced heat threat for major US growing regions.
"The jet stream will no longer stay north of the US-Canada border but is now forced to run west-to-east, south of the border," said.
This means that cold fronts will be allowed "fairly deep into portions of the central Plains and the Midwest in both the six-to-10 day and in the 11-to-15 day time frames".
"And more cold fronts coming further south usually implies more significant showers and thunderstorm chances and a less heat over the upper Plains and the Midwest."
Furthermore, there was Thursday's weak US export sales data to deal with, with prospects little-helped by a turn upward in the dollar after Moody's put Spain on review for a downgrade, showing the risk of contagion in the eurozone debt crisis remains alive.
'Substantial prevent plant'
But what is poor for corn has sometimes been good for wheat of late, with some talk of closing of "long corn, short wheat" spreads.
Furthermore, there were the results of the Wheat Quality Council tour of hard red spring wheat in North Dakota to factor in, with the crop pegged at a yield of 41.5 bushels per acre, beneath industry expectations, and 4.6 bushels per acre below last year's crop.
Still, more interesting for Jonathan Watters at Benson Quinn was "confirmation of substantial prevent plant in north western areas of the state", meaning that many farmers had opted to take insurance, rather than plant, in dismally wet sowing season.
And, with observations of scab and lodging (broken stalks), "continued wet weather over the next month would increase the possibility of a low quality crop".
Spring wheat itself traded 0.5% higher at $8.50 ¾ a bushel in Minneapolis for September, with Chicago (soft red winter) wheat, the speculator's choice, gaining 0.7% to $6.97 ¾ a bushel.
Stocks upgrade to come?
Soybeans were caught in the middle, with the August lot adding 0.3% to $13.71 ¼ a bushel, helped by expectations that today, the opening day of the contract's expiry process, will see low deliveries of physical crop.
But the best-traded November contract did less well, slipping 0.1% to $13.70 a bushel, dented by Thursday's weak US export data, and a poor crush figure for June too.
The crush figure of 124.3m bushels was the "smallest for the month since 2004", besides being a little below trade expectations, farm economist Darrel Good, at the University of Illinois, said.
"The slower pace of crush in June along with a slower than expected pace of exports in recent weeks suggests that stocks could be larger than projected."
The oilseed's weakness helped depress palm oil too in Kuala Lumpur, where the benchmark October lot shed 0.3% to 3,107 ringgit a tonne.
Egypt - again
As for later on, besides the data on soybean deliveries, traders may also take an interest in the latest Egyptian wheat tender - the second this week - announced after the close of trade last night.
(Tenders from Russia, which has won the latest tenders, and Kazakhstan invited, but not Ukraine.)
It is intriguing that Egypt, the top wheat importer, should return to the table so quickly, after buying a relatively small amount, 120,000 tonnes, on Tuesday.
Not that Russia is widely expected to lose its newly-reacquired stranglehold.
"It is worthwhile noting that European Union wheat - at a hefty $35-40-a-tonne premium over Russian - does not look particularly cheap at the moment," UK grain merchant Gleadell said, adding that "current prices are still good levels for farmers".

See the original article >>

Beijing Losing Sleep Over America's Fiscal 'Crisis'

I have to assume that a lot of government officials here didn’t get a lot of rest of late. There are really only three big news stories floating around, and while they vary in relevance with respect to Chinese politics, none of it is exactly good news.

First, there was a massive train wreck near Wenzhou. I don’t really do disaster coverage on this blog, so I’ll just point you towards the Google machine. You can start with Charlie Custer’s coverage of the story in ChinaGeeks. Not only is this a tragic story, involving at last count 35 deaths, but we’ve already got the usual finger pointing, rumors of government scandal and mismanagement, and calls for rail transport officials to be sacked. This one ain’t going away anytime soon.

Second topic, although of much less direct significance to China, is the terrorist attacks in Norway. Anytime there is a major incident involving domestic terrorism, you can bet that security officials here in China are dusting off their playbooks and wondering whether they’ve done enough to prevent that sort of thing from happening here. If I’m a high-level security official here, I’d be calling my deputies and asking for a briefing entitled “What China is doing to prevent a ‘lone terrorist’ scenario.”

Third, and in my opinion by far the biggest issue on the minds of the government, is the American fiscal ‘crisis.’ While the train wreck in Wenzhou is a huge media story, the slow-motion train wreck in D.C. is much more significant in the long run. At this point, even if the sellouts Democrats and the anarchists Republicans cut a last-minute deal, there’s a good chance that the ratings agencies are going to downgrade U.S. bonds anyway.

Automatically, China’s huge dollar investments are not as safe a bet as originally envisioned. But that’s only one problem.

Deal or no deal in the next few days, the general consensus is that the U.S. will not fail to make interest payments on its debt. It has enough revenue coming in to cover these obligations, after all, so that doomsday scenario appears quite unlikely to occur.

On the other hand, the best-case scenarios look pretty crappy too. A deal between America’s two dysfunctional political parties would involve steep spending cuts to discretionary and entitlement programs. Although I’m sure China would like to see the U.S. put this whole issue to bed once and for all, I doubt that Chinese economists will be jumping for joy at this kind of austerity package.

Why? Basic macroeconomics. Remember Econ 101 when we all learned that GDP = C + I + G + NX? This is the sum total of what a country produces, a combination of investment, private consumption, net exports, and government expenditures.

In the U.S. right now, investment is anemic, private consumption is in the toilet, and the country obviously has a trade deficit. So no help there with growth. What’s left to pick up the slack? Government spending. The U.S. economy is slow and unemployment is high; this is the time when government spending has to be stepped up until the situation improves. At least, that’s what sane policy makers would advocate.

The U.S. is one of China’s most significant overseas markets, and it is therefore quite concerned with how the U.S. manages growth. If the U.S. stops buying Chinese products (remember 2008/9?), then China’s manufacturing sector takes a hit, a lot of folks lose their jobs, and once again, China’s domestic security apparatus is worriedly looking over its shoulder.

So if the best-case scenario has the U.S. government cutting spending, in other words guaranteeing a further slowdown in GDP, Beijing can’t be too happy. On the one hand, China wants U.S. fiscal stability and reassurance that its dollar assets are safe, but on the other hand, China’s economy is still reliant on the U.S. export market. Tough situation.

While the security guys and the propaganda folks have their eyes on Wenzhou and Norway this weekend, I have the feeling that the higher ups are tuning in to CNN’s debt ceiling updates on last-minute White House arm-twisting sessions with members of Congress.

We’ll know a lot more over the next few days. In the meantime, it’s kind of depressing out there.

About The Author - Stan Abrams is a Beijing-based IP/IT lawyer and law professor. Stan has an M.A. from Johns Hopkins in International Relations, a J.D. from Boston College Law School, and a B.A. from Pomona College. He blogs at China Hearsay.

The Debt-Ceiling Debacle: Another Way Politicians Could Ruin America

By Kerri Shannon

Powell has watched the whole debt-ceiling debacle unfold down in Washington. He knows that our elected officials literally hold this country's future in their hands. He also knows that our leaders love nothing more than to squander opportunities and currently are poised to foul up our economy even more than it already is.

"Darn right I'm worried," Powell, a Money Morning reader, told us in an e-mail. "It's unbelievable. In 64 years I have never seen Washington so dysfunctional."

In response to some bleak USA Today/Gallup Poll results last week, we asked you, our loyal readers, to tell us how you think Washington has done with the debt-ceiling debacle. Most of you came to the same frightening conclusion: Our politicians' selfish antics have jeopardized our future.

Take Powell, who told us that he feels Washington's political posturing and brinksmanship has been a hindrance to the U.S. economy. But here's what really troubles him: He believes that with the way the system and our leaders currently function, none of this is fixable.

"Politicians are decimating the middle class and creating a new class of poor, banks and corporations are sucking the life out of the economy, and there's 9.2% unemployment - plus those whose benefits have run out - and Washington isn't doing anything to change this," wrote Powell.

Powell isn't alone.

The USA Today/Gallup poll showed that four in 10 of those surveyed thought Washington's job on the debt-ceiling debacle was the worst they've ever seen in their lifetimes.

Two-thirds of respondents said elected leaders in Congress were putting their own political interests ahead of the country's interests - leaving U.S. taxpayers to suffer.

That's a sentiment our readers have been conveying for years.

"This situation has crystallized for all to see the depth of the political agendas which are running our country under the guise of government," wrote reader Sharon S. "I think the job that President Obama and Congress have done during this developing debt-ceiling debacle could hardly be called ‘doing the job' at all. With the U.S. economy struggling to rebound I see no collaboration or cooperation from the leaders and elected officials."

Many fear this political bickering and self-serving activity has created a country far from what was intended for its citizens.

"I think our federal government is being reshaped into something our founding fathers fought with their very lives to prevent," said Gary S. "I believe it has been slowly evolving since the early 1900s and is gaining critical mass."

Honest answers like this are why we wanted to hear more from you for a change, instead of listening to, and repeating, more frustrating words out of Washington.

Most of you agreed: Our government has taken this country almost to a financial dead end. And if something isn't done, we may see backlash like never before.

"The government now has the U.S. economy in a box, with the size of our debt, that may not be totally fixable, and shifts in interest rates or a debt default may lead to revolts and other political problems we have never seen in this country," said Jim D. "It is time to quit playing political football with our lives and that of our nation, massively cut federal spending and entitlements."

If our elected leaders can't agree on change, we absolutely need to change our elected leaders - hopefully to some we can trust.

"It is sad that we can't trust a word being said in D.C. and the solutions being presented are not for the long-term survival of our country but the politicians' own agenda," wrote Gary P.

Distrust of our politicians is why many of you called for a change in the election process, in hopes of choosing leaders motivated less by their largest campaign contributor, and more by what's best for the country.

"This country is not run by individuals who have our best interest at heart, but by the people they are indebted to and that is very scary," wrote Rhea Fullmer. "If all potential office holders had the same resources, we might be fortunate enough that the best and brightest run for office. I'd just like to start over with a group whose mission is not to be a star, whose ego doesn't require running the show, or who is not bought and paid for. How about someone who is knowledgeable about the problems, votes with their conscience and believes that doing a good job has benefits of its own."

Some suggested introducing term limits, while others proposed the heartily supported - but unlikely to be implemented - idea of docking pay during times like these when political gridlock makes progress nearly impossible.

"I would cancel all checks going to the president, his cabinet, the House, the Senate members until a debt agreement is reached," wrote M.D. "And I would not compensate the lost pay. To get paid they must produce."

One reader suggested that some members of Congress truly do want to produce - and it's their determination to deliver on promises to reduce the debt load that has forced Washington to confront a budget issue it's tried so hard to avoid.

"What we are really seeing in Congress is a more intense version of the debate going on all across the nation, and it is a needed debate: How are we going to pay for all the government that we have?" said Gordon F.

The sobering reality is that while the United States attempts to answer that question, we are likely in for years of a dangerously troubled economy. And what many politicians seem to miss while they impede progress is that Americans are increasingly worried about how they will stay afloat.

Many households never fully recovered from the financial crisis, and with a government likely to squeeze taxpayers and citizens more in coming years -- and unlikely to prevent soaring inflation -- there's no end to financial pain in sight.

"I'm already in retirement, the chances of finding employment at age 62 are zilch," said Kearney B. "If I can't preserve my savings against inflation, I'm a goner. I've already warned my teenage boys that this is no time for a wimpy career prep, we are facing very tough times."

While many hope for an agreement that can prevent a U.S. debt default, thinking that will limit the "tough times" ahead, some think default is the only way the country can eventually return to a place offering financial security and opportunity.

"Only an honest default - rather than the kind done gradually through intense inflation - can get us once again on a firm footing," wrote Timothy S. "Apart from that, we face an inevitable Japan-style multi-decade collapse. Better to just get the pain over with and return (hopefully) to the roots that made us the best place on Earth for investment and invention. I want my children and grandchildren to have a future in America."

The debt-ceiling debacle remains unresolved with the Aug. 2 deadline only a few days away.

Political Crisis Contagion: Zapatero To Dissolve Government On September 26

Who says only America has a major political crisis that threatens to destroy the country. Following earlier press reports that Spanish PM Zapatero would dissolve government on September 26 in order to have a new general election on November 20, which were summarily denied by the government immediately, it only took about 20 minutes for Zapatero to make a TV appearance and admit that there will indeed be early elections. And judging by the recent surge in popular protests a government overthrow appears certain, which means that Spain's entire role in the Euro bailout mechanisms will transfer from asset to a liability (which is great for German leadership aspirations for a Fourth Reich in which the fate of the entire Eurozone depends on its, and not the ECB's every whim, broader population be damned), and that Spain can kiss future austerity plans goodbye. The immediate result, though, was another major move in the EURUSD, which tumbled by another 60 pips following overnight news of Spain's downgrade review by Moody's. Overall, the EURUSD moved from a high of 1.4360 on the Boehner news all the way down to 1.4230. Our heartfelt condolences to all FX traders. In addition the Spain - Bund spread is 348, +7 the highest in two weeks, while the Italy Bund spread moved higher by +13 at 332, matching last week's record high. Bailout #3 beckons, only this time the EFSF will be a cool two trillion.

Highlights from Zapatero's TV appearance:
  • Spain to Project ‘Political, Economic Certainty’
  • Will take time to reduce market volatility
  • EU summit steps are ‘greatly relevant’
  • Spain to make ‘extra effort’ to meet deficit targets
  • To take steps to boost employment
More from Reuters:
Spain's leftist government called early general elections for November on Friday, a move which had been widely expected to take advantage of improved ratings for the Socialists in the latest polls.

Spain's struggle to deal with its debt burden and avoid a Greek-style bailout has been central to concerns about a deepening of the euro zone's debt crisis.

Following are details of analysts' and markets' reaction to Prime Minister Jose Luis Rodriguez Zapatero's announcement.


"It's no great surprise. It had become increasingly obvious that the government would struggle to get the 2012 budget through and now it doesn't have to. The opposition People's Party is ahead in the polls and might even get an overall majority, although there is a suggestion they may have peaked. They've been trying to be all things to all men, but they should at least be able to get a budget through.

"That would leave us with virtually no left-wing governments in Europe. It's still not clear what will happen in Cyprus, we still have Greece and then of course there is Norway -- but that of course is an outlier in every way."


"I'm not convinced an election alone, even if it creates a fairly stable new government, will calm down markets. What we've seen in the last 18 months is that there are events that have a short-term impact on the markets."


"(There is) additional nervousness now. Extra short-term risk. (But) it is likely we will get a government with a better mandate to do what Spain really needs, that is more thoughtful labour market reforms."
And overnight EURUSD:

In fact the only thing prevent an all out implosion of the Euro today is the lack of the political crisis contagion to Italy, at least for the time being, where FinMin Tremonti, said that he will not be resigning. When this official party line changes, all hell will break loose. Remember that Italy, like Spain, is also on downgrade review of its Aa2 rating. From Reuters:
Italian Economy Minister Giulio Tremonti on Friday dismissed speculation he would resign though admitted making a mistake by using a luxury Rome apartment belonging to a former aide being investigated for corruption.

"I have a job that is very difficult and involves a lot of effort, and I want to continue doing it, as best I can, in the interest of my country," Tremonti told Italian television, appearing both apologetic and defiant.

"Yes, I have made mistakes, the only excuse is that I've worked a lot," he said.

Widely seen as the guarantor of Italy's financial stability, Tremonti has faced growing pressure over the apartment, adding to market jitters that the country could be next in the firing line as the euro zone's debt crisis widens.

The luxury apartment occupied by Tremonti until a few weeks ago was made available by Marco Milanese, a former aide being investigated by Naples magistrates for graft and influence-peddling.

The minister's weekly cash payments of 1,000 euros for its use since 2008 -- way below its market value -- raised eyebrows among Italian media commentators and the opposition, who questioned whether the payments were a way of dodging tax.

A mood of growing anger against a wealthy political class seen as wringing sacrifices from a long suffering public to balance the budget, has also weighed against the minister.

In the letter to the Corriere della Sera daily on Friday, Tremonti confirmed the cash payments, but denied any illegality.

"Did I commit unlawful acts? As far as I'm concerned, no. Did I make mistakes? Yes, definitely," Tremonti wrote.
We can not wait to see where Europe's political crisis contagion will strike next and add to its already pervasive financial one.

What Happens When A Paper Currency Fails?

Once upon a time there was a really nice country, Yugoslavia,but due to huge Economic and Religious problems, the country eventually was divided into smaller countries. Tito used to run the country successfully, balancing between the West and the East. It all worked well for Tito, who financed debt with printing money. Eventually, reality caught up, and Yugoslavia experienced one of the biggest Hyperinflation periods the World has ever seen. Sounds familiar? Courtesey Thayer Watkins,

Under Tito, Yugoslavia ran a budget deficit that was financed by printing money. This led to a rate of inflation of 15 to 25 percent per year. After Tito, the Communist Party pursued progressively more irrational economic policies. These policies and the breakup of Yugoslavia (Yugoslavia now consists of only Serbia and Montenegro) led to heavier reliance upon printing or otherwise creating money to finance the operation of the government and the socialist economy. This created the hyperinflation.

By the early 1990s the government used up all of its own hard currency reserves and proceded to loot the hard currency savings of private citizens. It did this by imposing more and more difficult restrictions on private citizens’ access to their hard currency savings in government banks.

The government operated a network of stores at which goods were supposed to be available at artificially low prices. In practice these store seldom had anything to sell and goods were only available at free markets where the prices were far above the official prices that goods were supposed to sell at in government stores. All of the government gasoline stations eventually were closed and gasoline was available only from roadside dealers whose operation consisted of a car parked with a plastic can of gasoline sitting on the hood. The market price was the equivalent of $8 per gallon. Most car owners gave up driving and relied upon public transportation. But the Belgrade transit authority (GSP) did not have the funds necessary for keeping its fleet of 1200 buses operating. Instead it ran fewer than 500 buses. These buses were overcrowded and the ticket collectors could not get aboard to collect fares. Thus GSP could not collect fares even though it was desperately short of funds.

Delivery trucks, ambulances, fire trucks and garbage trucks were also short of fuel. The government announced that gasoline would not be sold to farmers for fall harvests and planting.

Despite the government’s desperate printing of money it still did not have the funds to keep the infrastructure in operation. Pot holes developed in the streets, elevators stopped functioning, and construction projects were closed down. The unemployment rate exceeded 30 percent.

The government tried to counter the inflation by imposing price controls. But when inflation continued, the government price controls made the price producers were getting so ridiculous low that they simply stopped producing. In October of 1993 the bakers stopped making bread and Belgrade was without bread for a week. The slaughter houses refused to sell meat to the state stores and this meant meat became unvailable for many sectors of the population. Other stores closed down for inventory rather than sell their goods at the government mandated prices. When farmers refused to sell to the government at the artificially low prices the government dictated, government irrationally used hard currency to buy food from foreign sources rather than remove the price controls. The Ministry of Agriculture also risked creating a famine by selling farmers only 30 percent of the fuel they needed for planting and harvesting.

Later the government tried to curb inflation by requiring stores to file paperwork every time they raised a price. This meant that many store employees had to devote their time to filling out these government forms. Instead of curbing inflation this policy actually increased inflation because the stores tended to increase prices by larger increments so they would not have file forms for another price increase so soon.
In October of 1993 they created a new currency unit. One new dinar was worth one million of the “old” dinars. In effect, the government simply removed six zeroes from the paper money. This, of course, did not stop the inflation.

In November of 1993 the government postponed turning on the heat in the state apartment buildings in which most of the population lived. The residents reacted to this by using electrical space heaters which were inefficient and overloaded the electrical system. The government power company then had to order blackouts to conserve electricity.
A five hundred billion dinar note

In a large psychiatric hospital 87 patients died in November of 1994. The hospital had no heat, there was no food or medicine and the patients were wandering around naked.
Between October 1, 1993 and January 24, 1995 prices increased by 5 quadrillion percent. This number is a 5 with 15 zeroes after it. The social structure began to collapse. Thieves robbed hospitals and clinics of scarce pharmaceuticals and then sold them in front of the same places they robbed. The railway workers went on strike and closed down Yugoslavia’s rail system.

The government set the level of pensions. The pensions were to be paid at the post office but the government did not give the post offices enough funds to pay these pensions. The pensioners lined up in long lines outside the post office. When the post office ran out of state funds to pay the pensions the employees would pay the next pensioner in line whatever money they received when someone came in to mail a letter or package. With inflation being what it was, the value of the pension would decrease drastically if the pensioners went home and came back the next day. So they waited in line knowing that the value of their pension payment was decreasing with each minute they had to wait.

Many Yugoslavian businesses refused to take the Yugoslavian currency, and the German Deutsche Mark effectively became the currency of Yugoslavia. But government organizations, government employees and pensioners still got paid in Yugoslavian dinars so there was still an active exchange in dinars. On November 12, 1993 the exchange rate was 1 DM = 1 million new dinars. Thirteen days later the exchange rate was 1 DM = 6.5 million new dinars and by the end of November it was 1 DM = 37 million new dinars.

At the beginning of December the bus workers went on strike because their pay for two weeks was equivalent to only 4 DM when it cost a family of four 230 DM per month to live. By December 11th the exchange rate was 1 DM = 800 million and on December 15th it was 1 DM = 3.7 billion new dinars. The average daily rate of inflation was nearly 100 percent. When farmers selling in the free markets refused to sell food for Yugoslavian dinars the government closed down the free markets. On December 29 the exchange rate was 1 DM = 950 billion new dinars.

About this time there occurred a tragic incident. As usual, pensioners were waiting in line. Someone passed by the line carrying bags of groceries from the free market. Two pensioners got so upset at their situation and the sight of someone else with groceries that they had heart attacks and died right there.

At the end of December the exchange rate was 1 DM = 3 trillion dinars and on January 4, 1994 it was 1 DM = 6 trillion dinars. On January 6th the government declared that the German Deutsche was an official currency of Yugoslavia. About this time the government announced a NEW “new” Dinar which was equal to 1 billion of the old “new” dinars. This meant that the exchange rate was 1 DM = 6,000 new new Dinars. By January 11 the exchange rate had reached a level of 1 DM = 80,000 new new Dinars. On January 13th the rate was 1 DM = 700,000 new new Dinars and six days later it was 1 DM = 10 million new new Dinars.

The telephone bills for the government operated phone system were collected by the postmen. People postponed paying these bills as much as possible and inflation reduced their real value to next to nothing. One postman found that after trying to collect on 780 phone bills he got nothing so the next day he stayed home and paid all of the phone bills himself for the equivalent of a few American pennies.

Here is another illustration of the irrationality of the government’s policies: James Lyon, a journalist, made twenty hours of international telephone calls from Belgrade in December of 1993. The bill for these calls was 1000 new new dinars and it arrived on January 11th. At the exchange rate for January 11th of 1 DM = 150,000 dinars it would have cost less than one German pfennig to pay the bill. But the bill was not due until January 17th and by that time the exchange rate reached 1 DM = 30 million dinars. Yet the free market value of those twenty hours of international telephone calls was about $5,000. So despite being strapped for hard currency, the government gave James Lyon $5,000 worth of phone calls essentially for nothing.

It was against the law to refuse to accept personal checks. Some people wrote personal checks knowing that in the few days it took for the checks to clear, inflation would wipe out as much as 90 percent of the cost of covering those checks.

On January 24, 1994 the government introduced the “super” Dinar equal to 10 million of the new new Dinars. The Yugoslav government’s official position was that the hyperinflation occurred “because of the unjustly implemented sanctions against the Serbian people and state.” (Watkins)

Europe’s Last Taboos

You can always trust the Americans, Winston Churchill said, because in the end they will do the right thing, after they have exhausted all other possibilities. For the last 18 months, this has been Europe’s method for confronting its sovereign debt crisis as well: it has taken the necessary decisions, but always as a last resort.

Once again, on July 21, the eurozone’s leaders proclaimed that what was previously unthinkable was, in fact, necessary. They gave up the pretense that Greece is solvent; admitted that excessive interest rates could only make the problem worse; agreed to extend more and longer-term loans; called for private lenders to bear some of the burden; guaranteed that even if Greek government bonds are rated in selected default, Greek banks would not be cut off from access to liquidity; recognized the need to support economic growth; and agreed to broaden the scope of the European Financial Stability Facility, making it a more flexible tool for intervention.

For Germany, France, the European Central Bank, and other players, these about-faces have a cost in terms of reputation, political capital, and legal leeway. July’s decisions were sufficiently wide-ranging for everyone to be able to claim success. But the players will have to have to explain why red lines were crossed. All, no doubt, will claim that this is the last time.

Is that true? Have the last taboos been broken? Or will another crisis summit need to be convened soon with even bolder measures and denials?

In the case of Greece, there is real aggiornamento. In place of an equation without a solution, European leaders have substituted another, which no longer seems unsolvable. By deciding to provide cheaper loans and agreeing to a debt reduction, they have started reducing the burden. Unfortunately, the bail-in of private lenders is too limited in size and it is to be feared that the official sector will have to bear the burden of future debt reductions. But at least the taboo of private debt restructuring, which had been hanging over discussions for months, was broken.

A reduction in public debt will not make Greek companies more competitive or create jobs for the unemployed – even though it will help. Many believe that, if Greece is to recover, it will be necessary to break the real euro taboo and reintroduce a national currency.

The certain outcome of this would be immediate devaluation, much beyond what restoring competitiveness requires. When Argentina broke its link to the dollar in 2002, the peso lost four-fifths of its value.

But financial claims in Greece are denominated in euros. Forced conversion would destroy much of the value of savings, and the resulting currency mismatches would unleash a wave of bankruptcies (in Greece or the rest of the eurozone, depending on the exact terms of the conversion). Even before the shock, there would be a bank run as savers moved their assets, causing the financial system to collapse.

Moreover, far from being supported by such a move, the rest of the eurozone would be weakened, as speculators would start testing the true value of the German, French, or Portuguese euro. All of this renders adjustment within the eurozone preferable, despite the many difficulties that it presents and the costs it may involve.

For the eurozone as a whole, the measures announced in July will not dispel the concerns about other countries, particularly Italy and Spain. One of the most striking vulnerabilities revealed during the last few months is the correlation between banking crises and sovereign-debt crises.

In Greece, the parlous fiscal position is a threat to the banks, whose portfolio of government securities is twice the size of their capital. The same fear pervades Italy. In Ireland, it was the banks’ losses that brought the government to its knees. Spain’s government has been weakened for the same reasons. Regardless of which party is in power, the logic is the same: financially distressed states weaken the banks, owing to the falling value of government securities, while distressed banks weaken states, owing to anticipated bailout costs.

This vicious cycle results from the refusal to diversify and share risks. In the United States, banks that are incorporated in Delaware feel no obligation to hold bonds from that state. Instead, they hold federal securities. And it is the federal government in Washington, DC, not the state of New York, that is responsible for bailing out Wall Street. This does not eliminate all risks, but it diffuses them and implies that, in the face of financial hurricanes, calls can be made on the central bank.

Europe is not a federal state, but the eurozone’s resilience would be greatly boosted if deposit insurance were pooled – which would obviously require changes in banking supervision – and if banks diversified their bond holdings so that they were more representative of the eurozone as a whole (through Eurobonds, for example).

Europe has cautiously started to move in this direction by broadening the scope of its financial facility. But the pooling of risk remains taboo. It is not clear if this taboo will remain unbroken by the end of the crisis.

Jean Pisani-Ferry is Director of Bruegel, an international economics think tank, Professor of Economics at UniversitĂ© Paris-Dauphine, and a member of the French Prime Minister’s Council of Economic Analysis.

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S&P 500 Average Daily Change

by Bespoke Investment Group

The S&P 500 has had some big moves lately on both the positive and negative side. Still, though, we're nowhere close to the volatility seen during the financial crisis or even just a year ago. Below is a chart showing the average absolute daily percentage change of the S&P 500 on a rolling 50-day basis. As shown, over the last 50 days, the average daily move has been +/-0.76%. This is the highest reading seen during 2011, but it's well below the 1.37% reading seen in July of last year.

The most amazing part of this chart is obviously just how volatile things got during the last bear market. On December 8th, 2008, the average DAILY change over the past 50 trading days was +/-4.01%. It's easy to forget just how crazy things got back in 2008 and 2009, but this chart is a good reminder. It's still hard to fathom that the market was averaging a daily change of more than 4% back then.

Another Late Day Sell Off

by Bespoke Investment Group

Today's late day sell off marks the seventh day in a row where the S&P 500 saw declines in the last hour of trading. Over the last three weeks, the S&P 500 has declined in the final hour of the day (red lines) on ten out of fifteen trading days.

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The forgotten market factor that cries wolf

Guest blogger Mike Hogan, manager of Stewart-Peterson's Market360 service, takes a look at the impact quantitative easing, or QE1 and QE2, has had on the markets and assesses what a third round might mean.

You’ve heard the Aesop Fable The Boy Who Cried Wolf. A shepherd boy repeatedly tricks villagers into believing a wolf is attacking his flock of sheep. At a certain point, the villagers stop believing. When a wolf actually does show up, no one rushes to the shepherd’s aid, and the wolf wipes out his flock. Factors influencing market moves are like the shepherd, constantly setting off alarms. You hear them every day: weather, USDA acreage reports, global factors, political bickering over the debt ceiling, the Federal Reserve Bank’s second quantitative easing policy, or "QE2," and so much more.

What do markets do when alarm bells constantly ring? Usually they react, sometimes severely, sometimes without merit. Other times they shrug. You, as a marketer, are left to sort it out.

Let’s look at the quantitative-easing alarm. It doesn’t receive enough credit for moving the market, and it may soon go off.

In the year-long rally we’ve seen in grains and commodities in general, U.S. monetary policy has been an underrated aide. Credit for the rally often goes to decreased yields and increased demand for ethanol. Yet, we have been to these carryout levels before without the $8 price tag. If the dollar were valued at 120 instead of 75, it’s likely our prices would not be as high as they are today.

Looking back to July 2010, when the Fed talked about implementing QE2 to simulate the U.S. economy after QE1 lost efficacy, we saw the market rally substantially. It may even be that QE2 spared us a correction on several commodities – corn, wheat, beans, cotton, precious metals.

Quantitative easing is a Fed tactic that fundamentally weakens the U.S. dollar and thus creates an inflationary environment. A weaker dollar and inflation are bullish for grains.

QE2 ended on the last day of June this summer. We saw a broad-based sell-off during June, likely in anticipation of QE2’s end. (As a note, the normal seasonal on corn usually shows a sell-off on the last half of the month.)

On July 14, Fed Chairman Bernanke sent commodity markets higher during senate testimony on the economy when he said the Fed would act if the economy weakened, read: implement QE3. The very next day, he clarified his comments by saying the time for stimulus hadn’t yet come. Markets immediately corrected.
Would a QE3 be a solid indicator of higher prices? There are a few possible scenarios for you to consider as we all wait for Bernanke’s next QE move.

One, Bernanke is bluffing. The Fed won’t print more money, causing markets to grind lower as sellers look back over their shoulders. Two, the Fed implements QE3, the market loses confidence and a sell-off ensues. The rationale here is if the Fed is compelled to do something, the markets will conclude the economy really is weak and wonder, if QE1 and QE2 weren’t enough to start a sustained recovery, why would QE3 be any different? Three, we get QE 3, the market gains confidence and commodities go higher.

It’s difficult to say which, if any, of these scenarios will play out. I wouldn’t assume a third stimulus would have the same effect as the first two. The key point here is to remember there’s no way to know, which makes planning for all possible scenarios critically important. That way, if cries of "wolf" sound, you won’t be tricked and find yourself on the wrong side of the market.

Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at

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Corn, Soybeans Trading Weather Now until Augu

Market volatility is a regular feature of the grain and oilseed market this growing season and according to an Ohio State agricultural economist it will remain so until at least the next USDA production reports due in mid-August.
"Since the July reports, we've been in a straightforward weather market," said Matt Roberts , Ohio State University Extension economist and associate professor in the Department of Agricultural, Environmental and Development Economics. "We know planting progress was very slow this spring, which created a lot of concern about progress of development. Then the second and third week of July turned extremely hot across the country."
Concerns about heat- and moisture-related stress across the Corn Belt have traders as mindful as ever of Mother Nature, particularly because from a supply and demand standpoint, the markets are extremely tight.
Roberts said any major hiccup in production would likely mean higher prices for corn.
"Most of the country had adequate moisture because of the wet spring, but it turned extremely hot and humid during pollination so there was a lot of concern for the corn crop," he said. "We saw poor root structure, poor stands, and very patchy fields, especially in the Eastern Corn Belt."
With the variability of planting dates for Ohio corn, pollination has already occurred in some fields, and yet to occur in others, meaning weather will remain a factor for several weeks to come. For soybeans, August is a critical month to monitor weather-related plant stress.
"As crop conditions have continued to slowly deteriorate over the past few weeks, it's really focused a lot attention on the August reports," Roberts said. "Those reports will be the first that USDA attempts to actually forecast yield for the upcoming crop, based on a survey of over 1,000 sites across the country. Because of the tightness in the market, any shortfall in yield will be reflected by sharply higher process."
He noted that winter wheat has largely held with corn in recent weeks, while spring wheat has traded at a historical premium due to lower plantings resulting from the wet spring weather. In terms of soybeans, while the market has traded alongside corn to this point, it should move into a weather market of its own through August.
Corn traders are eagerly awaiting August 11, when USDA releases its latest World Ag Supply Demand Estimates, based on the first field survey data of the year.
"I think the market is beginning to expect that we're not going to hit that 158-bushel number," Roberts said. "If that's the case, then prices need to be at a level to ration out consumption. We do not have excess inventories, so if we don't hit 158, consumption will have to decline and prices will have to ration out the available inventory."
He recommended that farmers look at their new crop marketing plans and take advantage of opportunities where they exist. For the most part, he said old crop stores should already be sold.
"The first thing is on corn, if you can, leave basis open," Roberts advised. "I think we're going to have great basis opportunities next year just like we did this year. Basis improvements could be significant."
He also suspects the market will facilitate a "nice run-up" going into the August reports, which could present an opportunity to market some of the new crop. Given the production challenges facing Ohio farmers, however, he noted that many producers likely will wait to learn more about the crop in the field before being overly active in the marketplace.
"After those reports we'll likely see some weakness moving into harvest," Roberts said. "When we start getting harvest data in, that's when the market will start to pick a direction as we get an indication of how big the crop is, actually."

Silver Lining: Debt Ceiling & Quant Easing

As risk currencies become quickly overcrowded and range-bound equity indices remain the territory of traders rather than investors, silver once again appears as the notable gainer, characterised by richly similar fundamentals to gold. The only thing is that silver is trading 20% below its record high.

Here are 3 general reasons to our renewed preference for silver.

Inter-metal dynamics

Gold has always preceded silver in hitting new record highs (due to liquidity & popularity of investing options to the public), but silvers subsequent catch-up has rendered this pattern an attractive investment reality. This has especially been the case since summer 2010. It is important to remember the main reason to silvers severe underperformance relative to gold in April/May was artificial interference (exchanges quadrupled he margin requirements).

The fact that silver is 20% below its high despite improving metals fundamentals presents a notable opportunity for silver. The chart below (right) shows how the Gold/Silver ratio has resumed its decline, which is the case each time metals rise in concert.


The fundamental arguments to rising metals have changed little since the record-breaking days of March-April 2011. In fact, if anything, they have improved.

i) Regardless of the nature of any solution to the US debt ceiling problem, debt monetization and printing fresh paper by the US Treasury is here to stay. Meanwhile, the probability of a downgrade in the US credit rating has risen from zero, one year ago to 50-50% today according to S&P. This rapidly-changing landscape

ii) Combining the above with the broadening reality that US short term interest rates shall remain at zero until at least end of 2012 and QE3 is an impending likelihood, the substitute nature of metals to interest-rate bearing assets (money) shall continue to prevail in value.

iii) Europe may be free of bipartisan resistance to debt negotiations (as in the case in US partisan politics) but the tripartite lifelines remain short-term in nature as long as sluggish growth is unable to bring down the debt/GDP ratio.


The most striking technical argument to rising silver is the technical similarity between the current rebound and that of the February rebound (which led to new highs). Looking at weekly stochastics (momentum-related indicator) by using various speeds, we see the patterns are almost identical across different measures. This adds to the argument that the current price rebound carries sufficient follow-up momentum to lift it back towards the high $40s, at which point will draw retail interest back into the spring highs.

Click on Charts to Enlarge

The other key technical development is silver's monthly chart, showing a rare bullish engulfing July candle, defined when the bar "wraps" around the prior month's bar, paving the way for prolonged gains. Expecting $47 /oz in August. The $50 record is seen before end of Q3.

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