{"id":758,"date":"2013-07-03T06:05:19","date_gmt":"2013-07-03T10:05:19","guid":{"rendered":"http:\/\/www.dougsbriefcase.com\/blog\/?p=758"},"modified":"2013-07-04T07:52:11","modified_gmt":"2013-07-04T11:52:11","slug":"the-fed-the-ecb-and-la-dolce","status":"publish","type":"post","link":"https:\/\/www.dougsbriefcase.com\/blog\/the-fed-the-ecb-and-la-dolce\/","title":{"rendered":"The Fed, the ECB<\/span> and La Dolce Vita"},"content":{"rendered":"

<\/p>

\"Fellini<\/a>

Felli\u00adni cel\u00ade\u00adbrat\u00aded \u201cLa Dolce Vita\u201d in his film clas\u00adsic.  But a strug\u00adgling econ\u00ado\u00admy, wob\u00adbly banks and frac\u00adtious pol\u00adi\u00adtics threat\u00aden to take the \u201cdolce\u201d out of their vita. [Cred\u00adit: theworld.org]<\/p><\/div>Stran\u00adgozzi is the char\u00adac\u00adter\u00adis\u00adtic pas\u00adta of Umbria, Tuscany\u2019s hot sister.\n

Hearty and rus\u00adtic like the Umbri\u00adans who con\u00adceived it, stran\u00adgozzi is best enjoyed with an oil and gar\u00adlic sauce and shaved truf\u00adfles that flour\u00adish beneath the region\u2019s rich black soil. The pas\u00adta course is often pre\u00adced\u00aded by a hearty selec\u00adtion of salu\u00admi<\/em>,<\/span> which rough\u00adly trans\u00adlates as \u201ccold cuts,\u201d but whose char\u00adac\u00adter and fla\u00advor bear lit\u00adtle resem\u00adblance to their fee\u00adble Amer\u00adi\u00adcan deriv\u00ada\u00adtives, and fol\u00adlowed by meat \u2013 veal, beef, poul\u00adtry and pork are com\u00admon, as are wild boar, goat, rab\u00adbit and pigeon \u2014 grilled over a wood fire. All three cours\u00ades are best savored with a local wine, the ubiq\u00adui\u00adtous San\u00adgiovese or the rar\u00ader and more robust San\u00adgran\u00adti\u00adno, a grape cul\u00adti\u00advat\u00aded only near the Umbri\u00adan town of Mon\u00adte\u00adfal\u00adco. There\u2019s always tiramisu or anoth\u00ader Ital\u00adian dolce<\/em> for the insa\u00adtiable, topped off by a diges\u00adti\u00advo<\/em>,<\/span> limon\u00adcel\u00adlo per\u00adhaps or a brac\u00ading grap\u00adpa, made by dis\u00adtill\u00ading grape juice instead of fer\u00adment\u00ading it.<\/p>\n

Meals like this are typ\u00adi\u00adcal, and inex\u00adpen\u00adsive by Amer\u00adi\u00adcan stan\u00addards, in Umbri\u00adan trat\u00adto\u00adrie<\/em>. Unlike many Ital\u00adian restau\u00adrants in the U.S., the recipes are sim\u00adple and the ingre\u00addi\u00adents few. There\u2019s no need to embell\u00adish fla\u00advors that speak for them\u00adselves. The food is suit\u00aded to the rhythms of the Umbri\u00adan lifestyle, decep\u00adtive\u00adly sim\u00adple and punc\u00adtu\u00adat\u00aded by the dai\u00adly riposo<\/em> (nap).<\/p>\n

Beneath this seem\u00ading sim\u00adplic\u00adi\u00adty lies a healthy sus\u00adpi\u00adcion of gov\u00adern\u00adment and its benef\u00adi\u00adcences. Stran\u00adgozzi also is some\u00adtimes called stroz\u00adza\u00adpreti<\/a> (stran\u00adgle priests), a wry ref\u00ader\u00adence to the glut\u00adtony of their their long-ago cler\u00adi\u00adcal over\u00adlords (they would con\u00adsume enough of the pas\u00adta to choke them\u00adselves) that dates to the cen\u00adturies when the region was sub\u00adject to the papa\u00adcy. Dis\u00adtaste for author\u00adi\u00adty is baked into the Umbri\u00adans\u2019 dai\u00adly bread. They make it with\u00adout salt, it is said, because Pope Paul III<\/span> in 1539 levied a tax on salt, prompt\u00ading a failed upris\u00ading in the Umbri\u00adan city of Perugia.<\/p>\n

But if they chafed under papal rule, Umbri\u00adans are no more fond of the suc\u00adces\u00adsion of unsta\u00adble gov\u00adern\u00adments that the Ital\u00adian Repub\u00adlic has pro\u00adduced since its found\u00ading after World War II<\/span>.<\/p>\n

Those gov\u00adern\u00adments have long enjoyed unusu\u00adal\u00adly cozy rela\u00adtion\u00adships with Ital\u00adian banks.  Their sym\u00adbio\u00adsis now threat\u00adens both. Ital\u00adian gov\u00adern\u00adment debt stands at 127 per\u00adcent of GDP<\/span><\/a>,<\/span> and Ital\u00adian banks hold a large share of that debt. This pre\u00adcar\u00adi\u00adous arrange\u00adment sur\u00advives only because the Euro\u00adpean Cen\u00adtral Bank (ECB<\/span>) is deter\u00admined to sus\u00adtain it.<\/p>\n

A year ago, inter\u00adest rates on Ital\u00adian 10-year bonds rose above 6 per\u00adcent <\/a>and were head\u00aded toward unsus\u00adtain\u00adable lev\u00adels. The gov\u00adern\u00adment, which has to bor\u00adrow con\u00adstant\u00adly to make good on its promis\u00ades of cra\u00addle-to-grave secu\u00adri\u00adty for its peo\u00adple, could not afford to roll over its debt if rates had risen to 7 or 8 per\u00adcent. Default loomed as a pos\u00adsi\u00adbil\u00adi\u00adty, some\u00adthing that would have sent the gov\u00adern\u00adment and banks alike into chaos and poten\u00adtial\u00adly pre\u00adcip\u00adi\u00adtat\u00aded a breakup of the euro.<\/p>\n

Enter ECB<\/span> Pres\u00adi\u00addent Mario Draghi. \u201cThe ECB<\/span> is ready to do what\u00adev\u00ader it takes to pre\u00adserve the euro,\u201d Draghi pro\u00adclaimed<\/a>. \u201cAnd believe me, it will be enough.\u201d<\/p>\n

The ECB\u2019s deci\u00adsion to take Ital\u00adian debt onto its bal\u00adance sheet <\/a>has been enough to sup\u00adport gov\u00adern\u00adment bor\u00adrow\u00ading and pre\u00adserve Ital\u00adian banks, but it has done lit\u00adtle to resus\u00adci\u00adtate the econ\u00ado\u00admy. Italy is in reces\u00adsion. It will remain there at least through the end of this year, accord\u00ading to the Orga\u00adni\u00adza\u00adtion for Eco\u00adnom\u00adic Coop\u00ader\u00ada\u00adtion and Devel\u00adop\u00adment (OECD<\/span><\/a>).<\/p>\n

Euro\u00adstat<\/a> this week report\u00aded that unem\u00adploy\u00adment in May stood at 12.2 per\u00adcent, a fig\u00adure that the OECD<\/span> pre\u00addicts will climb to 12.5 per\u00adcent in 2014. Youth unem\u00adploy\u00adment is a nation\u00adal scan\u00addal: 38.5 per\u00adcent for peo\u00adple under 25 accord\u00ading to Euro\u00adstat, prompt\u00ading even uni\u00adver\u00adsi\u00adty-edu\u00adcat\u00aded Ital\u00adian young peo\u00adple to leave the coun\u00adtry<\/a> in search of bet\u00adter prospects.<\/p>\n

The ECB<\/span>-facil\u00adi\u00adtat\u00aded gov\u00adern\u00adment access to cred\u00adit hasn\u2019t ben\u00ade\u00adfit\u00aded Ital\u00adian busi\u00adness\u00ades either. 160 of its largest cor\u00adpo\u00adra\u00adtions have been dri\u00adven into \u201cspe\u00adcial cri\u00adsis admin\u00adis\u00adtra\u00adtion<\/a>,<\/span>\u201d accord\u00ading to Mediobanca\u2019s lead ana\u00adlyst.  Many small busi\u00adness\u00ades are starved for cred\u00adit, while oth\u00aders strug\u00adgle to repay exist\u00ading loans<\/a>. The street-lev\u00adel real\u00adi\u00adty is that la dolce vita<\/em> isn\u2019t always so dolce<\/em> these days.<\/p>\n

Mod\u00adern mon\u00ade\u00adtary pol\u00adi\u00adcy, though great for gov\u00adern\u00adments and stock port\u00adfo\u00adlios, nev\u00ader seems to do much to improve liv\u00ading stan\u00addards at the street-lev\u00adel. So long as gov\u00adern\u00adments have access to cheap cred\u00adit in bond mar\u00adkets and stock prices rise, cen\u00adtral bankers con\u00adgrat\u00adu\u00adlate them\u00adselves on their suc\u00adcess\u00ades. Eco\u00adnom\u00adic stag\u00adna\u00adtion and high job\u00adless rates are not under\u00adstood as signs of pol\u00adi\u00adcy fail\u00adure. Instead they are tak\u00aden as sig\u00adnals that cen\u00adtral bankers should dou\u00adble down on their interventions.<\/p>\n

Cheap cred\u00adit is gov\u00adern\u00adment hero\u00adin. Cen\u00adtral banks sup\u00adply that hero\u00adin. CBO<\/span><\/a> projects that our gov\u00adern\u00adment will need to bor\u00adrow $640 bil\u00adlion dur\u00ading this fis\u00adcal year to meet its oblig\u00ada\u00adtions. The Fed began pur\u00adchas\u00ading $45 bil\u00adlion per month <\/a>in US<\/span> gov\u00adern\u00adment debt last Jan\u00adu\u00adary, mean\u00ading that it would buy a total of $405 bil\u00adlion through the end of the fis\u00adcal year (Sep\u00adtem\u00adber 30). Fed pur\u00adchas\u00ades will thus equal 63 per\u00adcent of new gov\u00adern\u00adment bor\u00adrow\u00ading over that peri\u00adod at its cur\u00adrent pace.<\/p>\n

When the Fed\u00ader\u00adal Reserve sig\u00adnaled last month that it might slack\u00aden its pace <\/a>some\u00adtime lat\u00ader this year, investors pan\u00adicked, send\u00ading gov\u00adern\u00adment bond rates soar\u00ading and caus\u00ading a stock mar\u00adket sell-off. The sell-off sub\u00adsided once Fed\u00ader\u00adal Reserve mem\u00adbers gave pub\u00adlic assur\u00adances that its bond pur\u00adchas\u00ades would con\u00adtin\u00adue and the Com\u00admerce Depart\u00adment announced that the econ\u00ado\u00admy grew by a fee\u00adble 1.8 per\u00adcent<\/a> in the first quar\u00adter of this year. Such tepid growth augurs the per\u00adsis\u00adtence of high unem\u00adploy\u00adment rates. Investors believe that those two neg\u00ada\u00adtive indi\u00adca\u00adtors, which occurred despite (because of?) Fed\u00ader\u00adal Reserve pol\u00adi\u00adcy, will con\u00advince the cen\u00adtral bank to con\u00adtin\u00adue its bond-buy\u00ading spree.<\/p>\n

One won\u00adders how long this self-rein\u00adforc\u00ading cycle of stag\u00adna\u00adtion can con\u00adtin\u00adue. Despite a low\u00ader deficit this year due to tax hikes and seques\u00adtra\u00adtion, gov\u00adern\u00adment bor\u00adrow\u00ading remains high. Pub\u00adlic debt as a per\u00adcent of the over\u00adall econ\u00ado\u00admy is at a post-World War II<\/span> peak. If gov\u00adern\u00adment had to bor\u00adrow at rates more in line with his\u00adtoric aver\u00adages, both debt and deficit would be high\u00ader still.<\/p>\n

At some point, it would seem, investor con\u00adfi\u00addence in U.S. gov\u00adern\u00adment debt would erode, as it did for Ital\u00adian debt in 2012. But per\u00adhaps not. By con\u00adjur\u00ading cred\u00adit, cen\u00adtral bankers have so far also con\u00adjured con\u00adfi\u00addence. Per\u00adhaps that can con\u00adtin\u00adue for\u00adev\u00ader.  For as long as it lasts, polit\u00adi\u00adcal lead\u00aders can avoid tough ques\u00adtions about the sus\u00adtain\u00adabil\u00adi\u00adty of our cur\u00adrent fis\u00adcal path. Such seri\u00adous dis\u00adcus\u00adsions can wait for domani<\/em> (tomor\u00adrow).<\/p>\n

And, as Ital\u00adians well know, domani<\/em> nev\u00ader comes.<\/p>\n","protected":false},"excerpt":{"rendered":"

Stran\u00adgozzi is the char\u00adac\u00adter\u00adis\u00adtic pas\u00adta of Umbria, Tuscany\u2019s hot sister.<\/p>\n","protected":false},"author":3,"featured_media":777,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","wp_typography_post_enhancements_disabled":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"nfd_image_url":"","nfd_onboarding_generated":"","footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[18,25,371,14,370],"tags":[31,369,40,1182,368,359,84,32,365,364,1193,358,366,360,367,363,362,361,356],"class_list":["post-758","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","category-european-central-bank","category-federal-reserve-economy","category-global-economy","category-monetary-policy","tag-cbo","tag-commerce-department","tag-ecb","tag-european-central-bank","tag-eurostat","tag-fed","tag-federal-reserve","tag-gdp","tag-italian-debt","tag-italian-government-banks","tag-italy","tag-la-dolce-vita","tag-mario-draghi","tag-montefalco","tag-oecd","tag-perugia","tag-pope-paul-iii","tag-sagrantino","tag-umbria"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t