Political Dominoes are Falling in Europe

As in Sweden, the politics are flipping in Italy.

‘Mother, Italian, Christian’: Giorgia Meloni, Italy’s far-right leader on the cusp of power

How far-Right Sweden Democrats are bringing Trump's America to a small country town

"It's completely crazy that so many people here vote for them," complains Johan Tinné, the co-owner of the central Café Innegarden. "I think they've grown because of all the shootings and the gang crime. They blame everything on immigrants, and when something bad happens, they use that as propaganda." When asked if any friends and family also vote for the party, he shakes his head. "The day they start voting for SD, I'll end all my contact with them."

If you view politics somewhat objectively, if you can set bias aside when observing the whole picture, you can see how easily the populace can swing from a complex false reality such as "systemic racism" to innate tribalism. Or from one form of racism to another. It isn't that one is right or wrong, though your bias may argue that. It's merely the observation that, if you raise a population to think native populations are inherently evil, then it isn't at all a stretch for the public to then switch out white for black, or Russians, Chinese, Jews, migrants. What looks like moral authority is merely popularity and power. It's almost impossible that the natives, who are the dominant population group, won't eventually retake power on their terms.

My biased opinion is that the Western media, government and educational institutions rely less and less on dialectic, and more and more on rhetoric and intellectually-devoid ad hominems. As Biden did in his "MAGA are fascists" speech. A good reason not to engage in this type of propaganda is that it has a raw effect on the public.

Take a very complex theory such as systemic racism. Take the in extremis example of blaming anti-Asian violence on white supremacy, when nearly every single video shows a black assailant. If the propaganda pushes the public into an place of extreme emotional agitation and cognitive dissonance, if the public is starting to feel an emotional reaction such as whites believing they are being blood libeled and Asians are becoming anxious by the dichotomy of reality and propaganda, politics can quickly swing 180 degrees. An emotionally agitated population swings from "anti-white" to "anti-black," and stays there because of the video evidence. It doesn't require concocting bizarre political theories to defend "an epidemic of black crime." It's kind of funny that people who don't like the rise of SD in Sweden, say things such as "I think they've grown because of all the shootings and the gang crime." When a political movement intentionally increases shootings and gang crime, a backlash is inevitable.

In the 1980s, a reaction to the 1970s consisted of the Moral Majority turning against the smut and drugs of the 1970s. "Just Say No" emerged.  The moral part peaked in the late 1980s with Congressional hearings on rock and rap music lyrics. Crime was met with increased policing and incarceration.  "Three Strikes You're Out" laws proliferated. NYC saw crime rates plummet with "stop and frisk" and "broken windows" policing. Going farther back, the laissez-faire USA of the 1920s was effectively erased by FDR's New Deal, which vastly expanded government in a way that prior generations of Americans would have openly rebelled against. I believe current conditions are far closer to the 1930s than the 1970s. 

In times of extreme negative mood, political reversals are likely. If the right is in power, expect the left will win and vice versa. Across the West presently, extremist left-wing/liberal ideas are in power. It expresses itself mainly through extremist immigration policies (effectively open borders) and anti-racist ideology that treats native populations as the worst/lowest group in society. Global corporations tag along with policies aimed at crushing local labor. My view is these ideas have drifted into absurdity and cannot be defended. Since espousing common sense policies on immigration and race gets people labeled racists, then a shift back to "the middle" is unlikely. Instead, the public will flip into a moral mirror.

Moreover, it doesn't require complex theories. Should the government treat citizens better than foreigners? Should the government treat victims of crime better than criminals? Should government help workers more than giant corporations? Should government help companies build businesses at home instead of abroad? Should government fund social welfare at home instead of funding wars overseas? Most people will choose the former over the latter, except the current people in power. Two consequences follow. First, the people in power are going to lose that power. Second, I predict that every movement that is aligned with power from BLM to LGBTQ and so on, is at risk of also losing their social status. Not that they will, but that they could and some definitely will. For example, anti-LGBTQ laws that exist in Hungary, Poland and Russia will be found across the West.

The far right is having a moment in Europe. Actually, everywhere.

Pietro Castelli Gattinara, associate professor of political communication at Université Libre de Bruxelles and Marie Curie Fellow at Sciences Po, said that the far right is a global movement and a global ideology, even though one of the core tenets of these parties is a kind of nativism. That translates into a rejection of migration, but also of the social and cultural changes taking place within societies. The “woke” culture wars may look different in the US or Italy, but they are a feature of the modern far-right.

The "far-right" is diverse. The "Woke" around the world all believe the same things. They are globalists. They want to wipe out the nations. They call their movement diverse, but it is really homogenous. If everywhere is diverse, then it's homogenous. NYC is diverse because people from distinct cultures live/travel/work there. If everywhere is as diverse as NYC, then it is no longer unique.

The globalist goal isn't stability, but instability. They are using migration to destroy nations that resist globalism. Nationalists only share their love of their own people and cultures. Indian, Japanese, American and Swedish nationalists all agree that the nations (people) of India, Japan, America and Sweden should not be destroyed by globalism and diversity. The world is made more diverse by having these nations, than it is by putting all these people into a blender. 

War in Ukraine only highlights the battle. Russian areas of Ukraine want to breakaway and join Russia. Globalists are like the Ukrainian government trying to rule over diverse peoples. How much easier would it be if Eastern Ukraine was flooded with migrants who oppose joining Russia?

It is possible this is a temporary "moment" for the "far-right." I instead see a major turning point in the world. I believe it is very possible no one above the age of 50 will see the stock market higher (in real terms) than it was at the end of 2021. Prosperity is going away and whatever is associated with power today, could very well become unpopular in the decades-long downturn. More to the point, poor people value things like safety, community and culture in politics because they lack the wealth to buy it. The government cannot provide better material welfare if the economy is shrinking, but they can always provide more security and increase social cohesion with policies enforcing the dominant language, religion, family structure and so on.

One example: countries have already ended easy international travel with the pandemic. That is an anti-globalist, nationalist policy and it was mostly done by the globalist governments. A logical next step is to ban all migration, as that is a more "invasive" type of population movement. Even when they "win," the globalists will have to behave more like nationalists in the same way that laissez-faire accepted the welfare state as a practical matter.

Italy First

Italy could be the first Western European nation with a right-wing majority government. Polling shows the right could have enough seats to amend the constitution.

The bloc has an advantage of almost 20 percentage points on the center-left coalition led by Enrico Letta’s Democratic Party, according to Bloomberg’s latest polling average. Such an advantage, thanks to Italy’s complex electoral system, might grant it a two-thirds majority of seats in both houses of parliament, enough to change Italy’s constitution on its own.

Turning anti-Ukraine in the final weeks along with the spiking utility bills put them over the top. Although they don't have direct support, there are other parties with anti-populist and anti-EU positions that may be allies on some issues. The thing to note isn't which side wins versus the ruling class, but that the win could be a total victory. I expect most of Europe will see the coalition governments give way to total control by right or left. Conditions and issues favor the "right" if we classify nationalism and anti-immigration as right-wing. Denmark's ostensibly left-wing party won by being anti-globalist, for example. Being anti-immigration, anti-migrant, pro-deportation and so on will be agreed by everyone as the right policy, in the same way that no serious politician argues for abolising Social Security. In most countries, this will be a massive swing to the "far-right."

From 2015: This One Chart Explains the Next 10 Years of Political Change

Why the Dollar is Relatively Strong, Euro Edition

One of the first emergent signs of what is now called Wokeism was an attack on "ethnocentrism" in the 1990s. That's when the universities started cancelling "dead white men" for being white and men. However, the concept of ethnocentrism isn't entirely bad. A person can cloud their judgement by being excessively focused on the near while ignoring the far. This has been most evident among the dollar bears who are so focused on the failures of the Federal Reserve that they cannot see the greater failures of foreign central banks.

The rise of the U.S. dollar exchange rate this year has made monkeys of all the dollar bears. Cyclically, the U.S. dollar was primed for a decline, yet instead it has broken with four decades of cycle history and moved higher. The U.S. economy is shrinking as a share of the global economy, yet as a reserve currency and unit of account, creation of simulacra dollars (Eurodollars) exceeds that of the base money. Base money growth in the U.S. rises, but demand on that base money rises faster because of overseas credit creation.  Hence demand for the base money rises when expansion of the credit money (Eurodollars) slows or contracts.

I predict that, if the U.S. dollar loses reserve currency status, avoids going the way of Zimbabwe and something like SDRs replace it, the U.S. dollar will eventually appreciate versus the SDR. For the same reason the German deutschmark would appreciate versus a rump euro. Whenever there is a shared resources such as a common currency, he who prints most will drive the value of the currency lower.

Mises.org: ECB’s Long Journey into Currency Collapse Just Got a Lot Shorter

The new instrument, born under the name “transmission protection instrument” (TPI), will be the catalyst to the accelerated full transformation of the ECB into a bloated European “bad bank” fund. This entity enjoys a giant privilege. Its liabilities are in large part the designated money (whether as banknotes or as reserves of banks) enjoying huge protections as such (most importantly legal tender) in all member countries of the European Monetary Union.

In effect, since the EMU crises of 2010-12, the ECB has been the agent which has “communalized” much of the bad state and bank debt of Italy (also Spain, Portugal and Greece). It has done this by issuing euro money liabilities against giant purchases of government paper and long-term lending (called LTROs) into the corresponding weak banking systems (again most of all Italy).

This communalization has created three big problems for the future of the euro:

The euro is weak because it allowed countries such as Greece to issue "deutschmark" bonds in the 2000s. The euro was strong because of Germany, rather than weak because of Greece. Economic policy in Germany looks even worse than that of Greece in 2022, hence the rapid decline in the euro. The breakup scenario for the euro, however, has always been a German exit because the common currency exchange rate trends towards the most profligate borrowers over time. As soon as the European Union passed on kicking Greece out, it guaranteed the most likely breakup scenario is a German exit.

Third: the tolerance of the German public for this transformation of the ECB and its money could snap in a way which means that the Federal Republic pulls out of the union. Germany has been critical in keeping the ECB humpty dumpty together. Partly this critical role depends on public perception (that Germany stands behind the ECB and all its potential losses), albeit there is much wishful thinking here rather than legal fact.

...If, for whatever reason, the Italian spread (Italian government bond yields vs. German) suddenly widens – perhaps because markets distrust the political direction or sense that Italian credit institutions are in a new bleak situation – then the ECB can turn on the taps. Yes, it will sterilize the new lending, that means presumably disposing of German and Dutch paper in the ECB balance sheet to make room for Italian for example, becoming even more of a bad bank.

There are decisive moments in monetary history. The aftermath of July 21 is likely to be one of them as regards the European monetary future. These problems have become a lot worse

The same logic can be applied to an SDR, special drawing rights from the IMF. Whether it is formal or not, a move to a world with no dominant reserve currency is not that different from one with the SDR as the main reserve asset because in both cases, countries will be using currency baskets. The U.S. losing its reserve currency status would look more like a German exit from the euro than not in terms of the domestic economy. A costly adjustment period followed by the U.S. "decoupling" from the global economy as it becomes free to pursue a mercenary America First national economic plan. Placing tariffs on Chinese goods and on Chinese purchases of U.S. assets is fraught with economic costs today because it threatens the reserve currency status of the U.S. dollar. 

In the near-term though, it is the breakup of the euro that is helping lift the U.S. dollar because the (formerly?) dominant Germany economy is being pulled down by green idiocy, Baizuo foreign policy and the deficit spenders in Southern Europe. Declining social mood makes a total breakup increasingly likely. Keeping the euro together will require printing money much faster than in the United States. Investors and businesses that leverage themselves on the assumption of a relatively weak dollar will experience deflationary collapses as happened in 2008, 2011, 2014, 2018, and again in 2022.

Gasoline Price Change Since End of 2020

Highest to lowest increase: USA, China, UK, Italy, Germany, Mexico, Japan.

Chart for the Decade: Greece vs Germany

As I first pointed out in April, the Greece ETF has been basing versus the German ETF.

Greece doesn't look as strong versus the Eurozone ETF, but EZU includes countries such as Italy that also look like Greece:

Note that these ETFs include fluctuation in the euro, but the relative charts cancel that out. 

Investors in European debtor states have not made any money for 20 years. The chart of the Greece ETF alone looks like a gold mining stock, some "expensive oil" services companies such as offshore drillers, but hasn't broken out yet. Italy doesn't look as good here, but it is also tracing out a large basing pattern. In short, outperformance is happening on the downside for now.

Here is the Germany ETF. A possible low could be in the $20 area. Below the green support line and the blue horizontal, there is nothing but air to the downside.

The DAX Index has a clean top and two failed reversal attempts. Major support lines are about 23 percent lower and 50 percent lower from Friday's close.

Going all the way back to the post-2008 fallout era, when Greek sovereign debt emerged almost immediately and first rattled markets in the spring of 2010, critics of the euro and European Union have explained how Greece was being harmed by the euro and austerity programs being forced on the nation without any fiscal transfers:

Greece made a big mistake taking on too much debt in the 2000s at artificially low interest rates afforded by a credit bubble and its use of the euro. Any sovereign state in a similar situation post-bubble would intentionally devalue its currency or see the market would depreciate it for them, outside of an incredible reform movement.

Would it be impossible for the Greek stock market to rally in a bear market? No. There is one outlier scenario where that happens: Greece does something extreme such as exiting the euro and redenominating its sovereign debt in drachmas. More so than most nations, Greece would benefit from currency devaluation because it's economy and assets are already devalued. 

Currency devaluation is an escape valve for incompetent sovereigns. Serial devaluation shows a nation doesn't make hard choices and opts for the easy way out, impoverishing its own people and foreign investors over time. All nations will eventually devalue their currencies though, if reforms were not undertaken and credit not controlled. The mistake was blowing the bubble in the first place, not the currency devaluation that balances assets to liabilities.

Trade Implications

If Greece assets could rally on a euro exit, then Greece should outperform amid high inflation and euro weakness. The macro forces that crushed Greece in the prior decade are now turning in Greece's favor and against Germany. If trends continue for years, it might be Germany that wants out soon.

The cleanest trade here is short Germany, in local currency or in dollars via an ETF such as EWG. (Not necessarily a trade to put on Monday, but one that could have been put on in January and still held today.) Greece is not a clean buy because it will probably fall in a global bear market, but if that basing pattern turns into a breakout at any point, then I would recommend accumulating Greek assets along with Italian and other debtor countries, depressed sectors and so on during the dip because they should outperform in the next bull market. If you find a depressed asset that is harmed by a strong euro and deflation/disinflation, and it still has good underlying fundamentals, it sounds like a potentially good buy on the surface.

A breakout in the "Greece vs Germany" chart would signal a significant turn in macroeconomic forces. Conversely, if the chart were to fail (a "bear market" rally that delays the eventual breakout is not a fail) and sink again, it would tell me the post-2008 central bank trap is alive and well with potentially more QE and even more negative interest rates on the way.

Italy Becomes First Western Country with Major Coronavirus Outbreak

DW: Italy reports first deaths, South Korea sees cases double

EuroNews: Italy puts 10 towns on lockdown after two people die of coronavirus

There are at least 32 cases in Codogno, Lombardy, and seven in Veneto, report AFP, quoting Sky Italia television. Many of the new cases represented the first infections in Italy acquired through secondary contagion.

Eight of the cases came at the same hospital in Codogno. A 38-year-old man was hospitalised there and his wife and a friend have also contracted it. Five medical staff, including nurses and doctors, have also tested positive.

Numbers change quickly, but there was a report on February 21, 2020 saying six of the cases in Italy were severe. To this point, initial researched showed Asians and male were more susceptible because of ACE-2 receptors in the lungs. If this remains true, the risk of an outbreak in the West is lower because there may be a lower infection rate, and fewer severe cases. That would be good news for much of the world, but also for the global economy because it might mean strict quarantines will not be necessary across the globe. The outbreak in Italy threatens this assumption.

The stock market has largely ignored coronavirus to this point, and it ignored the Italy news that broke hours before the Friday close. We'll see what Monday brings.

Establishment Collapse: Trump Rises in Polls, Harley Workers Support Him

It's too early to say it is over, but the pedophrasty and moral panic over the child separation at the border could mark the real turning point for the establishment and The Narrative. President Trump's poll numbers went up, not down.

BI: Trump's poll numbers are surging as he faces some of the biggest controversies of his presidency

But even as some officials in the Trump administration are shouted out of restaurants and called fascists to their face, Trump's polling numbers have been steady — even rising — over the past several weeks.

Both a Gallup poll and the RealClearPolitics average of polls put Trump around a 45% approval rating, with that number rising steadily throughout June. That's just 1 point lower than President Barack Obama polled at this point in his presidency.

Over the same period, Trump's border practices drove at least one mainstream news anchor to tears and sparked round-the-clock coverage of family separations. Other than Trump's policy of separating migrant families at the border, which he reversed amid the scrutiny, analysts say his overall immigration policy looks a lot like Obama's.

Trump is also rising in Florida, a key state in the presidential election: Poll: Trump approval numbers rising in Florida

Only a week ago, amid the crisis, I posted: GOP Can Sweep Midterms With Hardline Immigration. And not too surprisingly, Trump shifted from sounding conciliatory amid the moral panic to a hardline on illegal immigration: Trump Goes All-in on Immigration, Moral Panic Intensifies

This week Trump further escalated saying he wants illegal aliens who cross the border illegally to be immediately deported. No court cases: Trump says illegal immigrants should be deported with 'no judges or court cases'

Meanwhile at Harley-Davidson, the workers are siding with Trump and against management.

ZH: Most Harley-Davidson Workers Back Trump, Blame Only The EU

But this decision hasn't translated into worker anger directed at the president. An informal survey of workers during a smoke break at the factory by the FT found that most - if not all - support President Trump's bid to revive American manufacturing by instigating a trade fight, even if Harley's EU sales have risen as a percentage of the company's overall sales in recent years.

As I've warned, negative social mood will tend to support a trade war. When mood is negative, conflict and tensions rise. If the public enters "war mode" on the trade war, then they will not care about economic losses in the short-term anymore than they care about losing lives, material and wealth in a real war. Real wars are as stupid as trade wars using strict accounting. Yet countries repeatedly go to war.

Independent Analysis

Let me take a moment to review some predictions made on this blog. I said immigration would become a big issue at least as far back as 2012. That's the earliest post I could find, although I'd been thinking about it longer. By 2014 I warned it was going to hit the U.S. In 2014, I saw President Trump coming. I bet on him to win. I made a ton of money doing it. I saw yuan devaluation coming long before it happened and in my opinion, the big devaluation hasn't happened yet (nor is it due to the trade war). I saw a trade war with China coming, along with the breakdown of popular and academic support for free trade. Back at least as far as 2014, when I wrote that post. I saw the coalition that would bring Trump to power. I saw the Treasury and Washington descending, manufacturing and national security ascendant.

I don't own a time machine and I don't have occult powers. I have a couple advantages on the experts though. One is I don't believe The Narrative.

Pedophrasty, Bigoteering, and Other Modern Scams

Bigoteering

Originates with Tim Ferriss, describes tagging someone (or someone’s opinions) as “racist”, “chauvinist” or somethinglikeit-ist in situations where these are not warranted. This is a shoddy manipulation to exploit the stigmas accompanying such labels and force the opponent to spent time and energy explaining “why he/she is not a bigot”.

Note that it is the true victims of racism that are insulted by virtue-peddling bigoteers.

Example: Both the Kurds who are asking for independence and the Arabs who refuse to grant it accuse one another of “racism”. Likewise, Arabists accuse localists (such as those who claim Phoenician or Coptic culture and habits away from Arab domination) of racism, forgetting that Arabism is grounded in a fundamentally imperialist and supremacist ideology. A localist wants others to leave him alone (leave me alone, I leave you alone, thus executing the moral symmetry of the silver rule), while Arabists want non-Sunni minorities to be their dhimmi servants or second class citizens under the cover of “nonsectarianism”.

The establishment in the West is in full on collapse. Fundamental collapse down to its core. This is a multi-century event, not a short-term one. Flaws in the Enlightenment are being exposed by science, and yet most of the establishment doesn't even believe in the Enlightenment anymore, at least not the American founders' version. They believe in equality, the French Revolution version that unleased communism and fascism in the 20th Century. On the other side, anyone who points out the Emperor Has No Clothes is hit with a bigoteering attack. The Establishment and The Narrative are doing industrial-scale bigoteering.

It's not enough to realize The Narrative creates a false picture of reality. The next step is trying to see reality clearly. To do that, you need a highly objective way of organizing and sorting through information. To make predictions, you need a way to model the future. Demographic changes and similar data are useful, but a key variable that has helped me is Socionomic theory. It posits that mood drives and influences human society. It allows you to make two predictions, one for a rising mood and one for a falling mood. Since mood was trending negative, I could predict trade wars were coming. I could see that immigration policy was extremist and going to blow up in the establishment's face. If social mood was rising, I would not predict a trade war or immigration restrictions. Candidate Trump would have fizzled out like Dick Gephart and Pat Buchanan did in the last 1980s and early 1990s. Trump's message wasn't far removed from those candidates, but his vote total was because social mood had declined greatly over three decades.

Nassim Taleb calls much of the establishment "intellectual yet idiots" or IYIs. Not every mainstream expert or pundit is clueless, but there's a very good chance many are dummies parroting The Narrative to protect their sinecure. When someone argues that mass immigration policy is a net negative, the "establishment" doesn't dig into the numbers to find out the truth. They call the person a racist or a Nazi and move along. Even if the people doing this at the start were smart, it has really dumbed down the establishment over the decades. Opponents of The Narrative have to debate from a young age and never stop. The Establishment lives in a safe space where debate is forbidden. Opponents have to dig and find every piece of evidence for every one of their claims. The Establishment can call you a name and "win."

I'll finish with another prediction. Many people think Trump will lose support if the stock market falls and the U.S. economy goes into recession. Yet look how the workers at Harley are responding to a tough economic situation. They aren't bolting from Trump, they're supporting him more. When/if the stock market crashes or goes into a bear market, and there's some fraud uncovered, shenanigans, the Federal Reserve drops the ball as it always does...President Trump won't bail them out. He might jail them. After seeing the establishment defend Wall Street at the expense of Main Street for a decade, do you think voters would run from Trump, or embrace him all the more tightly?

Once voters have a non-establishment choice they will vote for it. Italy's new government has picked a fight with the EU on immigration and moved towards deporting all migrants in their country. The parties are polling at a combined 60 percent. They are the new political establishment in Italy. Support may even rise if mood turns more negative and the economy sours because economics declines as an issue. Moreover, 10 years of a depression makes voters less sensitive to economic pain. If the stock market falls 50 percent, many of the populist voters won't notice. They are on government assistance or work in jobs that are recession resistant because any job that isn't is already gone. They might see things like gas prices and rents go down.

It goes against everything I've witnessed in politics to this point, but the old model of politics doesn't work anymore. These are "revolutionary" times. Even still, it's a stretch. I offer it as an extreme example of how far mainstream thinking is from actual events. Whether I would bet on support rising in an economic downturn depends on the odds offered. Everything is a probability. That said, I'm rather confident that if the economy weakens, the establishment and The Narrative will be out screaming its the end of Trump or whatever "populist" is in power at the time, and that will make for some pretty good odds.

Strong Majorities Back Salvini Shutting Ports and Confronting EU

Once people are allowed to vote, they vote strongly in favor of immigration restrictions. Where the left is smart (as in Denmark), it will flip on immigration. In some countries such as Sweden and Italy, the anti-immigration parties have enough center or left policies to win a majority. Elsewhere, where sane immigration policies are labeled as racist, xenophobic, etc., whatever party or politician delivers on immigration restriction will win power.

'The Good Times for Illegals Are Over', Italy Begins Blocking Migrants

ZH: "The Safest Port Is Yours": Italy's Interior Minister Blocks Migrant Ship, Hundreds Of North Africans Denied Entry

Italy's new populist Interior Minister, Matteo Salvini, has made good on his warning last weekend that "the good times for illegals are over" - writing an urgent letter ordering Malta to accept a ship carrying 629 shipwrecked North African migrants currently sitting off the Italian coast - calling Malta the "safest port" for the passengers, and advising that Rome will not offer refuge.

...Last Saturday, the recently elected Salvini said "the good times for illegals is over - get ready to pack your bags," adding "Countries need to start doing their job and no more smugglers should be docking in Italian ports," a not-so veiled jab at NGOs organizing rescues at sea.

"Italy and Sicily cannot be Europe's refugee camp," Salvini told a crowd in the vaction city of Pozzallo, a migration hotspot. "Nobody will take away my certainty that illegal immigration is a business... and seeing people make money on children who go on to die makes me furious," he added.

Markets Teaching Voters a Lesson

Prepare for Italian Fury: President Blocks Govt, Nationalist Landslide Incoming

The worst possible outcome for Italy is no longer a worry because an even worse outcome has replaced it.

RT: ‘Unprecedented institutional clash’: Italy fails to form govt over anti-EU economic minister

Italy’s PM-designate Giuseppe Conte said he’s given up on attempts to form a government after President Sergio Mattarella rejected his candidacy for economy minister. The country may now face a new election by the end of 2018.

...The candidacy for economy minister has been the main stumbling block for the creation of the new cabinet in the country. The anti-establishment Five Star Movement (M5S) and its rightist coalition ally Lega Nord, which won the most parliamentary seats in the March vote, insist on having Paolo Savona in the vital role.

M5S was outraged by Mattarella’s decision, with 5-star leader Luigi Di Maio calling it “an institutional clash without precedent” in a Facebook live video.

“What’s the point of going to vote if it’s the ratings agencies that decide?” Di Maio fumed. Meanwhile the League leader Salvini was sounding a similar tone.

RAI: Governo, la rinuncia di Conte. Mattarella: no a imposizione di ministri anti-euro

Salvini: "Someone said" no ", now to vote" "First the Italians, their right to work, safety and happiness.We worked for weeks, day and night, to give birth to a government that defends the interests of Italian citizens, but someone (under pressure from whom?) told us No. No more servants than anyone, Italy is not a colony At this point, with honesty, consistency and the courage of all time, the word he must come back to you! " writes the leader of the League.

For the past decade (arguably much longer), the central bankers and establishment assiduously kicked the can down the road. President Mattarella has kicked the can one more time, fearful that Paolo Savona would trigger a negative revaluation of Italian debt in the financial markets. This is the final kick of the can though. Italian voters will likely hand an even greater majority to 5-Star and the League later this year.

Since my U.S. dollar bullish forecast included Italian voters, I am not surprised. Either a political or economic blow-up would touch it off. And because the world is massively short of dollars (long U.S. dollar debt both directly and indirectly), all that's required for a new high in final leg of the U.S. dollar bull market is a rising dollar. Reflexivity will take care of the rest.

Italy Gets a Government

Daily Mail: Little-known lawyer is confirmed at Italy's new Prime Minister despite CV scandal as president gives him the go-ahead to form government with far-right and anti-establishment parties

'I'm aware of the necessity to confirm Italy's place, both in Europe and internationally,' Mr Conte said after his approval.

His coalition planned a radical slate of economic policies including drastic tax cuts, a monthly basic income that will cost the budget €17 billion (£14.9 billion), and pension reform rollbacks.

The government programme, announced on Friday, also planned to speed up expulsions of illegal immigrants and crack down on trafficking.

Globalists cannot win if a single government breaks with the pack and finds success. Success for globalists/Eurocrats in Italy is GDP and equities back to 2005 levels. A great accomplishment because only a few years ago, they were at levels last seen in the late 1990s. If there's a recession and bear market coming, the Eurocrats will have achieved 20 years of stagnation in Italy. A true lost generation.

Nationalists don't have a high hurdle to clear. I'm not even sure they need to revive the economy. Delivering the same stagnation, but deporting migrants would be enough to make them more popular than the centrist parties. If they default on euro debts and that causes a deep recession, it might also be popular because people may not blame them for the pain, but accept it as the cost of getting out from under the European Central Bank.

More detail here: Alhambra: Italy Went Boom A Long Time Ago (and that’s the point)

It's Official: Italy Swings Nationalist

May 2017: Italy's Turn to Try Populism

Europe can only dodge bullets for so long, and it only takes one victory to upend the apple cart. Once one nation acts in its self-interest, the pro-EU politicians who go along to get along will fall like dominoes. Nationalist sentiment is already high even in pro-euro and pro-EU countries.

Feb: Italy About to Turn Nationalist at Intermediate Peak in Social Mood

If you think the euro and European Union are out of the woods, that the populist wave has ebbed, think again. We are still part way through a decades long process. European nations are drifting in a nationalist direct despite social mood (measured by the market indexes) hitting new highs or at least multi-year highs.

March: Potential Euroskeptic Alliance Leading in Italian Exit Polls

One week ago it looked like the League would run from responsibility, but a blessing from Berlusconi led to a coalition with the 5-Star Movement.

Today at ZH: Italy’s 5-Star, League Reach Deal Clearing Way For "Anti-establishment" Government

What's on tap? Budget deficits galore, the middle finger to the ECB, more deficits, tax cuts, and deportations of migrants:

To be sure, what happens next is unclear as Italy's soon-to-be-governing coalition has made economic promises that seem incompatible with Europe’s fiscal rules and will be hard, if not impossible, to keep or even implement. These, as Reuters details, include:

slashing taxes for companies and individuals
boosting welfare provision
cancelling a scheduled increase in sales tax
dismantling a 2011 pension reform which sharply raised the retirement age

Yet while these two pre-election adversaries spent the last few days trying to meld their very different programs into a “contract” of mutually acceptable policy commitments, what they have in common is that they are extremely expensive.

On the face of it their plans, which they say may also include a form of parallel currency, could push the budget deficit far above targets agreed with the EU, setting up a clash with the European Commission and Italy’s partners.

“We will need to renegotiate EU agreements to stop Italy suffocating,” League leader Matteo Salvini said on Saturday after a day of talks with his 5-Star counterpart Luigi Di Maio. Separately, 5-Star’s flagship policy of a universal income for the poor has been costed at around 17 billion euros ($20 billion) per year. The League’s hallmark scheme, a flat tax rate of 15 percent for companies and individuals, is estimated to reduce tax revenues by 80 billion euros per year.

That's just the start of the new costs: scrapping the unpopular pension reform would cost 15 billion euros, another 12.5 billion is needed to head off the planned hike in sales tax. But the biggest wildcard is that the parties are considering printing a new, special-purpose currency to pay off state debts to firms.

A blue print for the U.S.A. when Bernie and Trump supporters eventually meet in the middle. Destroy the currency! But in the case of Italy, that's not merely hyperbole or a description of high levels of currency depreciation, but a literal description of what could happen to the euro. At least in Italy.

DXY > 120
USDCNY > 8.00
EURUSD < 1.00

Nationalists Still Rising in Italy

The 5-Star Movement and the League are rising in the polls. On the bright side for Brussels, the League's leader Matteo Silvini appears to be all talk.

ZH: Did Italy's Five Star Movement Just Blink Or Are We Headed To New Elections?

And his unwillingness to break up the coalition with Forza Italia or even completely sideline Berlusconi is all the proof you should need to conclude he’s not really willing to stand up to Brussels.

All that talk of “I’m a populist” and “The EU can go f$@k itself” may have simply been more smoke than fire. We’ll see.

As I said in my previous article on the matter, Italians voted against the established parties for something new. They didn’t vote for The League or Five Star Movement.

They voted for change. It was a protest. And the energy behind protests can be dissipated by the establishment by seducing the ‘new guys’ with power and back-room deals.

Salvini and Di Maio are both outsiders to Rome. They represent a sea change in Italian politics. And, as such, should see each other as natural partners not rivals for a job neither is actually qualified for at this point in time.

So, check the egos, have a constructive meeting and get a deal done that puts both parties on strong footing. Salvini has to give up his alliance with Berlusconi who hates what Five Star represents and Di Maio should give up being Prime Minister if that’s the only way Salvini’s ego can be salved.

The risk of radicals entering government increases when outsider parties with a mandate for change fail to take responsibility. The public will keep voting for change until they find someone willing to do the job.

The establishment in Italy is toast. The only question is who replaces them.

Mass Deportations Coming to Italy

The EU will crumble when the Italians begin deporting migrants. That looks increasingly likely given that Italians are kicking out paying tourists. The case for restricting tourism is rests on the same argument as restricting immigration: the policy should benefit the citizens. The crucial difference is tourists spend money and most immigrants into the West consume more in social services than natives.

Express UK:Venice tourist crackdown SPREADS across Italy - Anger as Capri and Garda near ‘EXPLODING’

The Island of Capri wants to follow Venice in bringing in crowd control measures, which saw the installation of check points in some of the most congested parts.

The mayor of the island just off Naples said with two million tourists a year the destination could “explode” from the weight of visitors.

Hotels and B&Bs on the island had already reached 90 percent for the first long weekend of the high season leading the Capri Mayor Gianni De Martino to reconsider how the town manages the flow of tourists.

He said: “The problem is not the turnstiles, but to find a system and a host organisation at the port and at Marina Grande capable of managing the remarkable tourist flows in our territory in an orderly and adequate manner without creating overcrowding.”

Venice increased its tourism crackdown:

Over the Sardinia Day holiday this weekend Venice installed metal barriers to divert tourists down less populated alleyways so workers and locals didn’t have to continuously dodge tour groups and visitors with bulky suitcases.

This move brings Venice closer to limiting the number of tourists allowed to enter the lagoon city, which currently sees 25 million visitors a year.

Locals still aren't happy:

However, checkpoints were immediately removed by protestors after demonstrating against the mass influx of tourists.

They had been installed overnight but furious locals tore them down.

One protestor said: “It's not the mayor who owns the city. It's not the police and not the tourists either. It's the people living in Venice.

Italy's stock market is near a post-2008 high. Social mood is positive at the moment.

The 5-Star Movement is calling for new elections.

Reuters: Italy's 5-Star calls for snap election after govt talks flounder

“At this point for me there is no other solution. We have to go back to the polls as soon as possible,” Luigi Di Maio said on Facebook, blaming center-left and center-right parties for refusing to negotiate with 5-Star.

Who is rising in the polls? The nationalist League and nationalist 5-Star:

“Another election increases the probability of a League/5-Star government, which is the least market friendly outcome,” said Rabobank’s Lyn Graham-Taylor.

Bet early and bet often against globalism.

Potential Euroskeptic Alliance Leading in Italian Exit Polls

Express UK:Italian election results LIVE updates: Five Star Movement single LARGEST party - exit poll

Exit polls show former prime minister Silvio Berlusconi's centre-right party and his far-right allies, Lega Nord, could emerge as the largest bloc in parliament but fall short of a majority.

While the anti-establishment Five Star Movement has emerged as the biggest single party, according to exit polls.

But they too do not look like they will secure enough support to form a government, pollsters said.

ZH: Euro Slides Amid 5-Star Surge, Possible Euroskeptic Government

According to the first official results, just like in Germany and Austria, there has been a surge in non-mainstream parties, with 5-Star potentially getting as much as 33% of the vote, and strong enough - at least on paper - to for a coalition government with the Northern League's 17.3% from the early count, creating the so-called "Euroskeptic coalition ", even as the establishment PD tumbles.

There's one other right-wing euroskeptic party, the Brothers of Italy (Fdl). If they joined with Lega in a coalition with 5-Star, that pushes the coalition to nearly 55 percent. Even if they give up a few points in final results, they could have a coalition here. Back in November:

The leader of the right-wing Northern League, Matteo Salvini, said last week, “I may give Beppe Grillo a call on election night if there are no clear winners” in the national elections.

Right now there is a clear winner: euroskeptic, anti-pension reform 5-Star and Lega. Will they choose to take power?

Italy About to Turn Nationalist at Intermediate Peak in Social Mood

If you think the euro and European Union are out of the woods, that the populist wave has ebbed, think again. We are still part way through a decades long process. European nations are drifting in a nationalist direct despite social mood (measured by the market indexes) hitting new highs or at least multi-year highs. The elites of Europe (and most of the West) dug themselves so deep in the hole by pushing peak social mood policies well after social mood had peaked. They are still pushing in the wrong direction today, 18 years after the peak and 10 years after they should have woken up. I don't think the French Revolution is a good model for what is about to happen, but King Louis XVI actually tried reforming at first.

Update: other European debtor nations have similar charts.

Two Italian Regions Vote for Independence

Turnout and the vote combine for an absolute majority of the voting population.

Daily Mail: Two of Italy's richest regions follow Catalonia's referendum example by voting overwhelmingly in favour of greater autonomy

The deeply indebted, sclerotic nation-state is in trouble.

Italy's Turn to Try Populism

A good round-up on the 5-star Movement in Italy. The party is currently at the top of the polls with an election coming sometime in the next 12 months.

WSJ: A Populist Storm Stirs in Italy

Fueled by discontent with slow growth, high unemployment and disillusionment with mainstream politicians, 5-Star has won local elections in Rome, Turin and elsewhere, partly on the strength of its leaders’ call for a referendum on Italy’s use of the European single currency.

Pollsters say about 30% of Italian voters support the movement founded by comedian Beppe Grillo, a level of popularity that has stood firm despite a series of high-profile stumbles, especially by its mayor in Rome. The self-described association of free citizens has replaced the center-left Democratic Party at the top of most polls ahead of national elections to be held by May 2018.

Europe can only dodge bullets for so long, and it only takes one victory to upend the apple cart. Once one nation acts in its self-interest, the pro-EU politicians who go along to get along will fall like dominoes. Nationalist sentiment is already high even in pro-euro and pro-EU countries.

Marketwatch: Draghi, Dutch lawmakers clash over ECB's stimulus

Mr. Draghi's rare visit to The Hague comes at a sensitive time for the ECB, which is considering when to start winding down its EUR60 billion-a-month bond-purchase program, known as quantitative easing. The program is currently due to run at least through December.

Tempers occasionally flared during a two-hour hearing in the Dutch parliament, as politicians probed Mr. Draghi on the ECB's record of transparency, and attacked policies they said subsidized southern European countries and harmed Dutch pensioners.

"You still believe this [QE program] is fully within [the ECB's] framework and you have not been doing any government financing, even though you [will have] bought EUR2.5 trillion of debt by the end of the year?" said Pieter Omtzigt, a member of the center-right Christian Democratic Appeal.

Mr. Draghi strongly defended the ECB's decisions, which he said had helped support households throughout the region, including in the Netherlands. He also brushed off calls for a swift exit from QE.

"It is too early to declare success," Mr. Draghi said. "Maintaining the current very substantial degree of monetary [stimulus] is still needed for underlying inflation pressures to build up."

...Some Dutch lawmakers weren't convinced. The ECB's stimulus might have made Mr. Draghi a hero in southern Europe, said one MP, but not in Holland.

"It's not my job to be a hero, just to pursue my mandate," Mr. Draghi responded. The ECB, he said, has done no more than other major central banks in the U.S., U.K. and Japan, which also launched major stimulus programs in recent years.

..."You look remarkably calm for someone who issues EUR2.5 trillion out of thin air, especially when your chief economist says there is no Plan B," commented Lammert van Raan, a member of the left-wing Party for the Animals.

States such as California and Texas have high hurdles on the road to independence. EU countries were sovereign nations less than a generation ago. The highest hurdle is a national election. The European project faces a bullet at almost every election, and if social mood deteriorates, the odds of nationalists winning goes up.

Euro Pressure as Crisis Approaches

Crisis - the turning point of a disease when an important change takes place, indicating either recovery or death

Social mood peaked in the year 2000 and has been falling ever since. The breakdown of the EU, euro and global trade is predicted by Socionomic theory assuming the fall in social mood reaches extreme levels. The seeds of the unwinding have been sprouting for more than a decade as nationalism rises. The political leadership across much of the West has implemented policies that only exacerbate the trend towards nationalism.

While the breakup moment may still be a couple years away, events are picking up speed as protectionist and nationalist sentiment across Europe and the United States creates more problems for a global system that doesn't make accommodation for it.

The latest burst of conflict began with the fine of Apple.

Guardian: Apple ordered to pay €13bn after EU rules Ireland broke state aid laws

The Department of Justice retaliated.

Fortune: Deutsche Bank Says DoJ Wants It to Pay $14 Billion to Settle Mortgages Case

Either the Obama Administration is staffed with total morons or they are intentionally looking for a target to pin a global financial crisis on. Because Deutsche Bank is the weakest firm in the global financial system at the moment, and the DoJ hit it with a fine that could push it over the edge.

More EU fines are likely, which could invite more retaliation: Apple Is Just the Beginning of Europe’s New War on U.S. Business

But this battle extends far beyond Apple. At stake is what happens to about $2 trillion that U.S. companies are estimated to have stashed abroad, out of reach of the U.S.’s 35% corporate tax. With governments vowing to crack down on tax havens, the scramble to decide where such levies might go has begun, and several EU countries, including France, Italy, and Germany, believe Apple owes them, too, a slice of those revenues.

No matter how the fight plays out, Apple’s fine may signal the end of decades of U.S. companies quietly cutting sweetheart tax deals with smaller EU countries. For years the arrangement suited both sides, with cash-strapped governments scheming to create jobs, and U.S. companies eager to boost profits. “For so long the attitude has been, ‘Whatever our lawyers can get away with is okay,’ ” says Markus Meinzer, director of the London-based Tax Justice Network. That’s no longer likely to be the case, he says, calling the ruling “historic and tide turning.”

Also the EU wants Google to stop anti-competitive Android practices, fine expected

The document, running to more than 150 pages, was sent to complainants last week for feedback. Google received a copy in April in which the European Commission accused it of using its dominant Android mobile operating system to shut out rivals.

The EU competition enforcer in its charge sheet, known as a statement of objections, said it planned to tell the U.S. technology giant to halt payments or discounts to mobile phone manufacturers in return for pre-installing Google's Play Store with Google Search.

If the U.S. is retaliating against Deutsche Bank, the current tit-for-tat cycle points to more of it.

Back to Deutsche Bank. The Germans and other hard-money countries pushed Greece to the wall. They passed new bail-in rules that force shareholders and creditors (which includes depositors) to take losses when a bank fails, Cyprus being the first major case. Recently, Germany also nixed Italian plans for a bailout of Italian banks.

German media this weekend said Germany cannot break the rules it created and enforced: Germany's Merkel cannot afford to bail out Deutsche Bank

"Of course Chancellor Merkel doesn't want to give Deutsche Bank any state aid," it wrote in a front-page editorial. "She cannot afford it from the point of view of foreign policy because Berlin is taking a hard line in the Italian bank rescue."

The Munich-based Sueddeutsche Zeitung wrote that Merkel would be breaking a promise to taxpayers if she were to bail the bank out, which could spell disaster for her re-election bid next year as the anti-immigration AfD party gains ground.

The AfD is already benefiting from a backlash against Merkel's open-door refugee policy, making huge gains in two regional elections last month and hitting an all-time high of 16 percent support in an opinion poll last week.

"A state aid package would drive voters into the arms of the AfD," the Sueddeutsche wrote in an editorial.

"Domestic political considerations make it unlikely that Berlin would play this joker. Even more unlikely is that the European Commission would agree. The political risk would be simply too high."

Ex-Deutsche Bank Executives Among 13 Charged in Paschi Probe

Six current and former managers of Deutsche Bank AG -- including ex-asset and wealth management head Michele Faissola -- along with former executives at Nomura Holdings Inc. and Banca Monte dei Paschi di Siena SpA were charged in Milan for colluding to falsify the accounts of Italy’s third-biggest bank and manipulate the market.

A judge in Milan approved a request by prosecutors to try 13 bankers on charges over separate derivative transactions Paschi arranged with the securities firms, said a lawyer involved in the case, who attended the closed-door hearing Saturday, where the decision was announced.

Unless there's a way out of the situation, Deutsche Bank will either impose an economic cost on the euro, or a political one. The dollar bull market may be about to resume.