This year’s farm bill was, like many farm bills to come before it, chock full of business handouts carefully disguised as essential support for the hearty people of the heartland.
The bill died on the House floor Friday morning, undone by a surprising 198–213 vote—surprising because one of the unwritten rules of being in charge of a legislative majority is that you don’t put anything up for a vote unless you know it is going to pass, which is apparently what House GOP leaders thought was going to happen. House Democrats and the Republican faction known as the House Freedom Caucus sank the farm bill by voting against it, but both groups did so for very different reasons and neither group was really objecting to the farm bill itself.
And the corporate welfare in the farm bill will likely end up on President Donald Trump’s desk anyway.
The House’s farm bill is being used as a bargaining chip in the ongoing debate over the so-called “Dreamers,” individuals who were brought to the United States illegally by their parents when they were minors and have lived here ever since. The more conservative Republicans were withholding their support for the farm bill until leadership promised a vote on a comprehensive immigration package, The Washington Postreports.
With Democrats united in opposition to a Republican plan to impose work requirements on food stamp recipients—the Supplemental Nutritional Assistance Program accounts for about 80 percent of farm bill spending—factions like the Freedom Caucus had more leverage than usual.
Republican leaders were able to navigate such stark divisions within their own ranks last year to pass a health care bill (which ultimately failed in the Senate) and a major tax reform, despite unanimous Democratic opposition. But things have changed since then. Speaker Paul Ryan (R-Wisc.) has announced his retirement, the midterms are creeping closer, and polls show that Republicans could lose their majority. Each of those factors creates more friction between the House GOP’s factions as Ryan’s would-be successors jockey for position. It makes any major legislation a harder sell.
All that inside baseball distracts from some very real problems with America’s agriculture policies, such as the sugar subsidies that a group of conservative lawmakers targeted for deletion, unsuccessfully, in the lead-up to Friday’s vote. As Reason‘s Christian Britschgi wrote earlier this week, the farm bill is emblematic of virtually everything that’s wrong with Washington, and Republican control of both Congress and the White House did little to produce a more fiscally sound farm bill in 2018.
In the wake of the House defeat, a different farm bill being crafted in the Senate will now be the center of attention. That bill is not riven by the same in-fighting that sank the House version—it is being prepared in a bipartisan fashion by the Senate Agriculture Committee—but that means it is unlikely to include any significant reforms to the subsidies, handouts, and corporate welfare that legislators and lobbysists have cultivated through the years.
A Boeing 737 plane carrying 107 passengers and crew en route to the Eastern city of Holguin, crashed moments after takeoff from José Martí de La Habana airport in Havana, Cuba according to local reports. It is unknown if there are any survivors, however the plane appears to be at least partially intact from a photo taken at the scene. Firefighters are working to control the blaze.
The plane, operated by Cubana de Aviacon “fell” shortly after taking off, crashing near a high school in the Boyeros neighborhood next to the airport.
Cubana de Aviacon has been forced to ground some of its aging fleet over safety issues. On Thursday it was reported that the airline received an order from the Cuban National Aviation Authority to ground its AN-158 fleet over recurring technical issues that could impact flight safety.
The airline operates up to six of the Ukranian aircraft, but the repetition of maintenance issues and unavailability of spare parts forced Cubana to ground most of its fleet months ago. Just one An-158 was still operating as of April 2018.
The official reason cited in the resolution issued by the authority states “multiple and repeating failures have been found in complex systems, built by mechanical, hydraulic and electrical components, as well as computer performance algorithms,” as well as “evidence of design and manufacturing flaws, serious issues in flight control system, cracks in the structure and engine temperature increase above normal parameters.”-airlinegeeks
Wow, word seems to be coming out that the Obama FBI “SPIED ON THE TRUMP CAMPAIGN WITH AN EMBEDDED INFORMANT.” Andrew McCarthy says, “There’s probably no doubt that they had at least one confidential informant in the campaign.” If so, this is bigger than Watergate!
The Daily Caller’s Julia Nista pointed out the hypocrisy of former Director of Intelligence James Clapper, who said Thursday night on CNN that it was “a good thing” there was an FBI informant spying on the Trump campaign.
Clapper admitted the FBI “may have had someone who was talking to them in the campaign,” referring to President Trump’s 2016 presidential campaign.
He tried to explain away the possibility of an FBI informant spying on the campaign as the bureau was trying to find out “what the Russians were doing to try to substantiate themselves in the campaign or influence or leverage it.”
Obama’s Director of National Intelligence then went on to say,
“So, if there was someone that was observing that sort of thing, that’s a good thing.”
Nista then tweeted a quick summary of the sheer farce…
A) Clapper, Brennan, Rogers testify before Senate
B) Clapper: “it’s possible” FBI was spying on Trump campaign
C) Clapper says this informant was “a good thing”
How can you be a former member of the intel community and claim spying on a presidential campaign is a ‘good thing’?
“it’s hugely dangerous if someone like that is exposed because the danger to that person” and the potential “reluctance of others to be informants for the FBI” could possibly devastate the FBI.
In other words – don’t try to find out who the spy was because it’s just too dangerous to national security!!
We leave it to Fox’s Sara Carter to summarize…
Wait… Clapper the leaker who denied the IC was being used to spy on the Trump campaign, now says it was a good thing they did.. unfettered power https://t.co/9qUhXEXV3P
One month ago, when looking at the sharp spike in oil and gasoline prices (which at the time averaged $2.73), we said that the surge in energy costs – largely the result of geopolitical risk emanating from Iran for which Trump was been responsible – will wipe out any remaining benefits for the middle class from Trump tax reform. Fast forward to today, when gas is nearly 20c higher than it was a month ago, and fast approaching the critical for middle-class consumption level of $3.00.
Since then the topic of how much of an adverse impact rising oil prices will have on the economy has emerged front and center, with pundits and economists debating at what price the negative consequences from reduced consumer spending will offset the favorable benefits from increased CapEx spending by US shale and energy companies.
Picking up on this topic overnight, Bank of America’s energy analyst Francisco Blanch said that he expects Brent crude oil prices to trend gradually higher, hitting an average of $80/bbl by mid-2019 before then just as gradually trending lower to an average of $71/bbl by year-end 2019. This amounts to approximately a $20 appreciation in crude oil from the end of last year to the peak in the outlook.
But the real question is what does this $20 jump in the price of oil mean for the economy?
As BofA explains, to get a sense of how the rise in oil prices will affect growth, the bank ran a one-time $20 oil shock in FRB/US, the Federal Reserve Board’s general equilibrium macroeconomic model.
It found only a modest impact: real GDP growth initially slows by less than 0.1pp relative to baseline before some modest positive payback in following years (Chart 1). It also ran an “oil shock” scenario that doubles the increase in the baseline forecast which aligns with the BofA Commodity Research team’s upside risk scenario. Predictably, in that case growth slows more noticeably – to the tune of roughly 0.1-0.2% – before retracing some of the drag in the out years.
So, to the Trump administration this is good news, if only superficially: these simulations suggest a temporary rally in oil prices is unlikely to create a major headwind for the economy. As we said, that the “superficial” case.
However, a sustained oil price shock where crude oil prices remain at peak levels would be significant. The BofA model simulations indicate a permanent oil price shock to $80/bbl would shave roughly 0.2pp from growth over the next eight quarters while a sustained shock to $100/bbl would cut roughly 0.5pp. Also note that the economic literature finds that large movements in oil prices could have negative nonlinear effects on growth as consumers may be slow to adjust to higher energy prices. However, given that the bank is only forecasting a gradual rise in prices over the outlook, it does not expect a material slowdown in growth and maintain our current growth forecast.
* * *
Here are some more details from the BofA analysts:
Drilling into energy inflation
Energy is broken up into energy commodities and energy services in consumer inflation. The former reflect products like retail gasoline that are refined from crude oil, while the latter capture electricity and piped gas where natural gas is the primary consideration. As of 2017, petroleum only accounted for 0.5% of electricity generation, so it really is not an important driver of energy services.
Energy commodities largely reflect gasoline and other motor fuels, which account for more than 90%. To model the elasticity of energy commodities to crude oil, first think about the retail gasoline pipeline. Crude oil is first refined into gasoline and sold wholesale before reaching consumers. Without getting too into the weeds, BofA estimates the elasticity of crude oil onto energy commodities to be roughly 0.7, meaning that a 1% increase in crude oil over a two month period results in a 0.7% increase to energy commodities Accounting for energy commodities making up 2.3% of headline inflation, a $20 increase in crude oil would add 0.3% to headline PCE and a $40 increase would boost headline inflation by 0.6%.
Hitting (headline) inflation
Based on the analysis above, a transitory increase in crude oil prices would be reflected quickly in headline inflation via the energy component (Chart 2). Indeed, the crude oil rally through the first quarter has contributed to headline PCE running, on average, 14bp higher than core PCE on a % yoy basis. However, the effects would filter out just as quickly if there was a reversal, and core inflation would be largely unaffected by the noise.
On core inflation, the literature generally finds limited pass-through of energy prices. Cavallo (2008) finds that oil price inflation have had a small and statistically insignificant effect on core inflation while Hooker (2002) finds little or no passthrough to core inflation since the 1980s. On the other hand, Conflitti and Luciani (2017) find some impact with their estimates showing an average elasticity of 0.01 in the first year of the shock and a small but lasting 0.003 over the next several years. Their estimates suggest that a $20 oil shock would boost core inflation by about 0.2pp in the first year, and less than a tenth thereafter. The more extreme $40 scenario would boost core inflation by roughly 0.4pp in the first year and 0.1pp after.
As BofA notes, the “Bottom line is that we think the new outlook for oil prices will temporarily lift headline inflation but have little to no effect on core inflation, leaving us comfortable with our call for core PCE inflation to hit 1.9% yoy and 2.1% yoy this year and next, respectively.”
These aren’t your parent’s oil shocks
Another reason why BofA doesn’t expect the rise in oil prices to materially impact its outlook is that the importance of oil shocks has diminished over time. In the past, changes in oil prices were a major source of economic fluctuation. For example, oil price shocks of the 1970s led to bouts of stagflation (i.e., low growth, high unemployment, and high inflation). However, since the late-1990s, growth and inflation have remained relatively stable in the face of major oil shocks. There are several factors for this phenomenon.
First, we now consume less energy goods than in the past. Consumption of gasoline, fuel oil and other energy goods as a share of total consumption has fallen from around 8% before the 1970s to around 2.5% today, limiting the effect of oil shocks (Chart 3). Second, the US produces more oil domestically, reducing our reliance on foreign production (Chart 4). Production of crude petroleum and natural gas extraction has been surging since the mid-2000s.
Therefore, a rise in oil prices today redirects more income between domestic consumers and producers than it did previously, cushioning some of the negative impact of an oil shock.
Third, monetary policy credibility has improved over time. Blanchard and Gali (2007) find that fluctuations in inflation and growth diminished over time owing to the FOMC stronger commitment to price stability in the Volcker era. All these factors suggest the increases in oil prices will only have a mild effect on growth and inflation.
Heightened risk
Despite the generally favorable conditions, BofA admits that higher oil prices are a key risk to its growth outlook but at this stage, the bank maintains its view that growth will remain on target to hit 2.9% this year and 2.4% next year. The bank underscores that only a sustained pickup in oil prices is likely to weigh on the economy which appears unlikely given its current forecast for oil prices. Moreover, BofA adds that the likelihood that an oil shock will lead to recession appears low, for now, especially since the fiscal stimulus from tax cuts and the budget deal should buffer against any downturn. Moreover, structural changes to the economy should limit the negative impact.
On inflation, the pass-through of oil shocks to core inflation appears fairly limited while headline inflation is likely to respond quickly.
To BofA, all this suggest that Fed should remain comfortable in its gradually hiking cycle and keep them on track to raise rates two to three more times this year. Of course, if BofA is wrong and the inflationary impact is more acute, it will simply mean that the Fed is even further behind the curve, forcing it to hike at an even faster pace if and when the wage inflation finally spills over into the economy.
The Russian Air Force has released a video that features a short clip filmed from inside a TU-95 ‘Bear’ long-range bomber as it was being escorted by two F-22 stealth aircraft off the Alaskan coast during the latest in what’s been a string of tense intercepts this year.
The incident occurred a week ago and made international headlines. As we reported at the time two Russian bombers were intercepted by the US stealth fighters in international airspace within 200 miles of Alaska’s coast in the morning hours of May 11. NORAD (North American Aerospace Defense Command) confirmed the incident in a public statement, which involved the massive Russian planes being escorted away from the US coastline for 40 minutes while in international airspace the whole time.
Still Frame from video taken inside the ‘Bear’ bomber showing the two F-22 stealth aircraft escorting the Russian plane.
NORAD and USNORTHCOM spokesman Canadian Army Maj. Andrew Hennessy described of the encounter: “At approximately 10 a.m. ET, two Alaskan-based NORAD F-22 fighters intercepted and visually identified two Russian TU-95 ‘Bear’ long-range bomber aircraft flying in the Air Defense Identification Zone around the western coast of Alaska, north of the Aleutian Islands.”
While the Russian Defense Ministry acknowledged the incident in the immediate aftermath — adding the detail that US monitoring jets never came closer than 100 meters to the Russian bombers — it has now gone further and released its in-flight footage of what happened during the intercept just off the port side of the plane.
However, judging from the footage, it actually does appear the US jets came within 100 meters of the Russian aircraft, if not very close to within that range.
It’s somewhat standard for the planes to get so close in order to confirm VID (Visual Identification) by the intercepting fighter aircraft, but Russia for its part, took issue with early statements that this was an “intercept” — which occurred within the US Air Defense Identification Zone (ADIZ) — said to extend approximately 200 miles off Alaska’s western coast. NORAD itself confirmed at the time that the Russian aircraft never entered US airspace, according to NORAD’s statement.
The Russian head of its long-range aviation operations, Lieutenant General Sergei Kobylash, commented in an article corresponding with the release of the new footage that “no one intercepted anyone.”
General Kobylash explained: in the report originally published in the Russian language publication Zvezda:
As for the last such flight, only one pair of US Air Force F-22 fighters have escorted our aircraft. Just one, it says that a certain effect of surprise has worked. Usually, during the execution of such flights, we are escorted to five or seven aircraft, while escorts are carried out by fighters of various states. I want to note that during this flight no one intercepted anyone. US Air Force planes accompanied our aircraft in the airspace over neutral waters. The pilots acted in the air correctly. No violations were recorded.
It appears Russia is seeking to calm tensions and prevent sensationalizing such incidents, especially after a string of Russian-US aerial close calls and intercepts over the past months not only off Alaska, but over the Black Sea as well.
In April Russian bombers were sighted and monitored four times near the Alaskan coast, while in January a Russian Su-27 reportedly flew within a shockingly close 1.5 meters of a U.S. Navy surveillance plane while both were operating over the Black Sea, in international airspace.
* * *
But there will likely be more close calls in the months to come, considering new reports of greater and more frequent Russian advanced long range aircraft in operation over the Arctic Circle and beyond.
As Al Masdar News reports, citing further statements by General Kobylash, Russia is expanding the international presence of its supersonic missile carriers.
Russia is expanding the international presence of its supersonic aircraft.
Previously on Wednesday, long-range bomber commander Kobylash and Russian Secretary of the Security Council Nikolai Patrushev discussed the development of airbase infrastructure in the city of Engels in the Saratov region, as well as strategic air deterrence in zones deemed key to Russia’s national interests, and issues related to combating international terrorism.
“The flights that were carried out by the crews of the strategic missile carriers to the equator and Indonesia indicate that the range of tasks is increasing along with the range of those directions and airfields where we are tasked to designate our presence,” said Kobylash.
According to Kobylash, Russia is strengthening the protection of the Arctic with the help of supersonic Tu-160 missile carriers.
“This year we are planning to fly to Anadyr with Tu-160 planes. Now the Arctic is of strategic importance for us, so we are developing new airfields and products for ourselves that will ensure the country’s security from the maritime borders and in this direction,” he said, adding that last year the Tu-22M3 for the first time carried out landings in Anadyr and Vorkuta.
In addition, Kobylash said that the airbase of strategic missile carriers in the city of Engels will receive new headquarters facilities and buildings. He specified that during the first stage of modernization the runway received a new coating of modern materials. Also in 2017 a new refueling complex was built at the airbase.
Multiple people have died as a result of a school shooting Friday morning at Santa Fe High School near Houston, Texas.
Eight to 10 people have been killed in the shooting, and a school resource officer was injured. The majority of the fatalities are reportedly students. CBS reports that another officer was injured but not shot.
“There’s multiple fatalities, anywhere between 8 to 10. The majority being students. One male is in custody. And then a second one, again, was a person of interest. Both are believed to be students here at the school” Sheriff on Santa Fe school shooting https://t.co/dCBeJu80DJpic.twitter.com/psMS86MYKI
At least six people have been hospitalized, including the injured school resource officer and one student.
The shooter—a male whose name and age has not been released—has been arrested, and a second person of interest has also been detained. Both, Harris County Sheriff Ed Gonzalez told reporters this morning, are students at the school. Police have not confirmed reports that the shooter used a shotgun.
Law enforcement has confirmed that explosive devices have been found at and near the school’s campus.
According to witnesses, the shooting occurred between 7:30 and 8:00 a.m. in an art classroom. Witnesses also report a fire alarm being pulled during or right before the shooting.
“We’re closely monitoring the situation. This has been going on too long. Too many years, too many decades,” President Donald Trump said of the shooting at a press conference to tout a prison reform bill. His administration would do “everything in our power to keep weapons out of the hands of people” who pose a risk to themselves and others, he added.
As with any developing crime story, it is important to take any reports filtering out in these early hours with skepticism.
What is wrong with passive investing and index hugging? One problem is that these strategies often use ETFs. I wrote about the potential for ETF meltdown last October, with a follow-up shortly thereafter, so I won’t belabor that here. Another problem is that most passive portfolios follow a cap-weighted index. Recently I also wrote about the risk from this. So I won’t repeat that here, either. What I will do is add another risk that comes from the passive and index-hugging approach to portfolio management, the resulting lack of diversity in investment strategies and outlook.
The need for diversity is fresh on my mind because last week I was fortunate to share the stage with two academic luminaries, Andrew Lo, a finance professor at MIT , and Simon Levy, a professor of ecology and evolutionary biology at Princeton, at an event jointly sponsored by the BCG Henderson Institute and the Institute for New Economic Thinking. It took place at BCG’s new office at Hudson Yards on New York’s West Side, a place where shiny office buildings are popping up like sunflowers.
Andrew and Simon co-authored a paper arguing that financial regulation can learn from the regulation of biological systems. Andrew also has a recent book Adaptive Markets with arguments closely related to the same topic, that financial systems can be viewed as adapting to the changing, dynamic work in ways analogous to biological entities.
The essence of a biological system is that it is dynamic and complex, with the agents of that system facing unexpected changes in their environment. One way they meet the challenges of their dynamic world is to adapt through evolutionary changes. But in the biological realm evolution takes time, whereas the changes to their environment can be sudden. The more immediate survival mechanism in the biological realm is diversity, both across species and within any given species.
Diversity is the immediate result of sexual reproduction. There is a mixing of genetic traits, so each offspring is a little different. Which means many offspring are less than ideal for the current environment. In contrast, with asexual reproduction you get carbon copies of the parent, absent the occasional mutation. If the world keeps on going the same way and if the survivor in the assexual world is among the fittest for that world, then its offspring will be equally fit. The diversity in outcome from the sexual species will just add noise and inefficiencies in terms of survival.
The reason the world has largely moved to sexual reproduction is that things do not stay the same. Because the asexual species are all genetically identical, if things move the wrong way they all die off. But because there is diversity within any sexual species, there is a chance that some will have the characteristics to survive in the new system. Maybe those will not be the ones that are the best in the current system, and maybe they won’t be the best in the new one, but they will be good enough in both.
Passive investing is the financial equivalent of an asexual ecology. That is, being asexual means it is not diverse. (And being asexual, passive investing, as many portfolio managers can attest, also means it is not a lot of fun.)
The risk, then, is that with us all crowding into the same passive investments we will not have the diversity to adapt if something bad comes along.
But it is actually worse than that.Being all the same might actually create the bad thing that comes along. Because we don’t just live in the ecology, we create it, and we create many of its shocks. If things start going in the wrong direction, the effect of all of the passive investors moving in the same way, and the lack of deep-pocketed investors ready to take alternative tacks, will itself create the dynamic cascade.
By the way, this is a problem that is not restricted to passive investing, or even to finance. I have written about the asexual capitalist, and how the same problem of a lack of diversity inflicts the capitalist system broadly.
Syrians in the central part of the country are on edge after a series of massive explosions rocked a Hama military airport on Friday. Local reports indicateup to seven explosions were heard, after which a mushroom could hung over the edge of Hama city.
“The explosions struck several regime depots of weapons and fuel at Hama military airport,” Rami Abdel Rahman, the head of the pro-opposition source Syrian Observatory for Human Rights, said.
Conflicting accounts quickly emerged as to what caused the blasts, with UK and Abu Dhabi based Sky News Arabia claiming there was an attack on Hama province’s Iranian air defenses, though most early reporting only admitted speculation.
The aftermath of Friday’s successive blasts in Hama province.
The Times of Israel further indicates that the Arabic language Sky News reporting asserts specifically that “the target of the [Israeli or allied coalition] strike was an Iranian Bavar 373 long-range missile defense system, a state-of-the-art model that was unveiled in 2016 and put into service in March 2017. Iranian officials compare the system to the Russian-made S-300 system, which is considered a powerful air defense platform.”
An early reporting consensus suggests an arms and munitions warehouse may have exploded in an event that’s currently receiving a lot of media attention due to the size and stunning nature of the images.
Reports of x7 explosions inside #Assad’s strategically vital #Hama airbase.
Initial images from pro-regime sources indicate a very large explosion – likely arms depot.
As South Front reports, Syrian sources reveal that several ammo depots were part of the airbase and had exploded for unknown reasons, further indicating the possibility that poorly stored ammunition may have ignited as result of a heat wave that’s hitting central Syria.
Other sources claimed that a poorly controlled explosion of dozens of IEDs, captured from militants, led to the explosion of all the ammo depots in the airbase.
If it was such an important base for the “Iranians” then why wasn’t it targeted once over the last 4 years when #Israel kept striking? https://t.co/yxhreg2BaF
Few issues are as controversial as the right to free speech, especially when it’s pitted against people’s desire not to feel attacked or hated simply because of their race, gender, or sexual orientation.
Over the past 20 or 30 years, speech codes have proliferated in the workplace and at colleges and universities. By a narrow margin, says Gallup, today’s college students say promoting an inclusive campus environment is more important than protecting First Amendment rights of free speech. Yet large majorities also say they want a campus in which all speech is allowed and that their own campus stifles free expression.
Nadine Strossen, who served as the president of the American Civil Liberties Union (ACLU) from 1991 to 2008, is the author of the new book Hate: Why We Should Resist It with Free Speech, Not Censorship, which lays out a compelling argument against policies that try to restrict what individuals are allowed to say. Attempts to legally prevent and criminalize hate speech, Strossen writes, typically end up being used against the very people and groups they are intended to protect. What’s more, she says, the alleged harms caused by ugly speech are routinely overstated.
Strossen is the daughter of a Holocaust survivor, and in 1978 the organization she would go on to lead famously defended the rights of neo-Nazis to march through Skokie, a Chicago suburb with a large Jewish population. Many residents of Skokie were survivors of German death camps; they argued that the psychic pain of a Nazi rally would be brutally upsetting and could lead to violence. As the ACLU’s brief in that case noted, the arguments for stopping the march were the exact same ones made 10 years earlier by the residents of Cicero, Illinois, who sued to stop Martin Luther King from leading a civil rights demonstration in their town.
Strossen, a professor at New York Law School in Manhattan, sat down with Reason‘s Nick Gillespie to talk about her new book, why hyperpolarization in American politics makes free expression more difficult, and the best ways to counter bad, stupid, and hate-filled speech.
Click here for full text and downloadable versions.
In 2009/10, squeezed by insolvency, a lack of liquidity, and Federal limitations, the California government began to issue a ‘parallel currency’ in IOUs in lieu of payment on everything from supplies to contracted services and health-care costs, so it can actually preserve cash to make payments to its generous debtors.
Now, eight years later, despite all the talk of ‘recovery’ and ‘global synchronous growth’ and ‘normalization’, Italy’s newly-formed coalition of The League and Five Star (which some have likened to Trumpian ‘nationalist’ Republicans merging with Bernie leftists) have put forward a plan that, among other things, includes the introduction of a parallel currency for Italy – ‘mini-BOTs’.
The chart below, created by analysts at Nomura, shows where both stand on key policy issues, highlighting both their similarities and their differences as they prepare to govern together.
It is the Italian euroskepticism that dominates market concerns. Investors were initially spooked by a section where the nascent coalition floated plans to ask for €250 billion in debt forgiveness for the country. But, as Credit Suisse argued,
“A markedly Eurosceptic prime minister… as well as concrete support for the introduction of a parallel currency (so-called Mini-BOTs’), would be major negatives, in our view.“
So what are ‘Mini-BOTs’?
In order to settle bills with suppliers or creditors the state might consider “instruments such as mini-government notes” which may also be used in turn to repay tax arrears, says the government program agreed by the two parties’ representatives and leaders.
Earlier this year, outgoing Economy Minister Pier Carlo Padoan described the proposal as “a plan to circulate a disguised parallel currency”.
It is this section of the Five Star-League Accord that raised eyebrows…
“Something must be done to resolve the problem of the public administration debts to taxpayers.”
Claudio Borghi, the League’s economic chief who helped write the government plan, told la Verita newspaper that the new securities “could be spent anywhere, to buy anything”.
Mike Shedlock previously noted that ‘Mini-Bots’ are a parallel currency based on future tax receipts, similar to the plans proposed by Yanis Varoufakis in Greece.
The minibot was in the Lega’s election manifesto. Five Star is far less radical on the eurozone, having dropped the idea of a referendum, but also seeks changes that are incompatible with the the EU fiscal rules.
A parallel currency stands a much greater chance of success in Italy, and it would go some way to solving the government’s fiscal dilemmas. The open question is whether it would constitute a slippery slope towards euro exit.
How would it work?
Bloomberg’s Stephen Spratt explains that basically the Italian government would mail you a certificate that says it’s worth a certain amount — and you can sell that if you want to get the money quicker.
But it would be likely to trade at a discount to its face value in euros, in effect creating a parallel currency — particularly if people were to start using the new note as cash to exchange for goods and services, rather than using euros.
There are reasons to be skeptical – not least that these notes are likely to be in small denomination and won’t be perfectly fungible with bills or cash. It may seem far fetched, and may never come to pass, but that’s bound to make investors nervous.
Of course, the question is ‘what is a mini-BOT’ worth?’ For now, it is impossible to tell but we do note that Italy’s relative creditworthiness for Euros is about 20-30bps higher than its recent norms…
And Italian Euro debt trades at around a 160bps haircut to German Euro debt…
Which could perhaps be extrapolated to indicate an Italian Euro is worth around 98c on the German Euro… for now.
Italy’s gold has had an eventful history. Robbed by the Nazis and taken to Berlin. Loaded on to gold trains and sent to Switzerland. Flown from London to Milan and Rome. Used as super-sized collateral for gold backed loans from West Germany while sitting quietly in a vault in New York. Leveraged as a springboard to prepare for Euro membership entry. Inspired Italian senators to visit the Palazzo Koch in Rome. Half of it is now in permanent residency in downtown Manhattan, or is it? Even Mario Draghi, European Central Bank (ECB) president, has a view on Italy’s gold. The below commentary tries to make sense of it all by bringing together pieces of the Italian gold jigsaw that I have collected.
According to officially reported gold holdings, and excluding the gold holdings of the International Monetary Fund (IMF), Italy’s central bank, the Banca d’Italia, which holds Italy’s gold reserves, is ranked as the world’s third largest official holder of gold after the US and Germany, with total gold holdings of 2,451.8 tonnes, worth more than US$ 105 billion at current market prices. Notable, Italy’s gold is owned by the Banca d’Italia, and not owned by the Italian State. This contrasts to most European nations where the gold reserves are owned by the state and are merely held and managed by that country’s respective central bank under an official mandate.
Palazzo Koch
In its Palazza Koch vaults in Rome, the Banca d’Italia claims to store 1199.4 tonnes of gold. Of this total, 1195.3 tonnes are in the form of gold bars (represented by 95,493 bars), and 4.1 tonnes are in the form of gold coins (represented by 871,713 coins). While most of the bars in Rome are prism-shaped (trapezoidal), there are also brick-shaped bars with rounded corners (made by the US Mint’s New York Assay Office) and also ‘panetto’ (loaf-shaped) ‘English’ bars. The average weight of the bars in Palazzo Koch is 12.5 kg (400 oz), with bar weights ranging from relatively small 4.2 kgs up to some very large 19.7 kgs bars. The average fineness / gold purity of the Rome stored bars is 996.2 fine, with some of the holdings being 999.99 fine bars.
The Banca d’Italia also states that 141 tonnes of gold that it transferred to the ECB in 1999 as a requirement for membership of the Euro is also stored in Palazzo Koch. This would put the total gold holdings in the Palazzo Koch vaults at 1340 tonnes. Gold transferred to the ECB by its Euro member central banks is managed by the ECB on a decentralised basis, and is held by the ECB in whatever location it was stored in when the initial transfers occurred, subject to various location swaps which may have taken place since 1999.
Where’s the Rest?
Bullion Star writer Ronan Manly asked the Bank of Italy, Mario Draghi, and other officials a bunch of question on location, leasing, etc. The questions were all refused.
Manly also uncovered a bit of history, translating a video in Italian into English, noting that when the bars were moved to Germany they were stamped with a Swastika:
“The RAI broadcast video shows a 1940 Nazi bar from Berlin, stamped with the eagle and swastika insignia and with Prussian mint markings. The Nazi bar holdings can be explained by the fact that the Italian gold was confiscated by the Nazis during World War 2 and ended up being moved out of Rome up to the north of Italy and then most of it was transported onwards to Berlin in Germany or else to Switzerland.”
The reporter, Angela, states that in addition to Rome, the Italian gold is stored at the Federal Reserve Bank in New York, the Bank of England in London, and at the Bank of International Settlements (BIS) in Switzerland. The reporter uses the exact words “Banca dei Regolamenti Nazionali”.
Even in Italian, the video is fascinating. Here are some image clips.
This year’s farm bill was, like many farm bills to come before it, chock full of business handouts carefully disguised as essential support for the hearty people of the heartland.
According to witnesses, the 
