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Euro Slides, Dollar Rises, Italy Plays With Fire


On Friday, the euro fell to its lowest rate against the USD since January 10 and to its lowest point against the yen in three weeks. A number of factors came together to keep the euro in a steady slide and the yen on a steady rise.

In Europe, the euro zone’s 17-member nations released economic information that painted a bleak picture for the region during 2013. Only Germany seemed to discount the overwhelming evidence of another recession. The German confidence index climbed for the fourth straight month, despite a dismal finish to 2012 and data suggesting manufacturing in the country and the region was dialing down.

The euro fell to $1.3166, well below the 15-month peak of $1,3711

The euro fell to 122.23 yen, down  1.4 percent

The dollar index struck a five-month high at 81.508.

In addition to projections that euro zone unemployment would remain in the 12 percent range for 2013 and that Spain’s unemployment rate would stay at 20 percent, there were other factors that are too unsettling to overlook. The ECB had anticipated banks would  pay back 131 billion euro of borrowed funding but fell far short of the mark, repaying just 61 billion euros on Thursday.

Spain announced the country would fall far short of its debt reduction goals in 2012 and well below euro zone requirements. The events in Spain and Italy should be observed by US politicians as examples of what happens when politics and economic concerns face off against each other.

Recent production numbers from the US indicate that businesses are uneasy about how politicians will handle the sequestration due to fall off the March 1st cliff on Friday, March 1, 2013. Coupling this event with the upcoming debt ceiling expiration, the stage is set for a perfect storm that will leave the middle class crippled and the country mired in what will surely become another recession.

And, the political rhetoric in Washington marches on.

On Thursday, minutes from the Federal Reserve’s January meeting were released. The possibility that the Fed will raise interest rates earlier than expected strengthened the dollar against the declining euro.

In addition to the economic woes in Europe, the political theater is unnerving economies outside the region. The amazing but disturbing popularity of Italian bad boy and financial nightmare Silvio Berlusconi have shaken confidence in Italy’s future and thus the future of the euro zone.

Is it possible that the regions third largest economy could turn a blind eye to the unscrupulous Berlusconi? Apparently so as the former Prime Minister is locked in a three way run between himself, current prime minister Mario Monte and Luigi Bersani.

Many economists hold Berlusconi responsible for the lax financial oversight that sank the nation’s economy. However, Italians seem to prefer the wayward ways to the disciplined approach to correction that Monti has advocated.

The euro zone produces 20 percent of the global output. The European Commission said that the euro zone will not return to growth until 2014, dimming hopes of China and the US for their export markets.

Across the region, consumer inflation could deal another blow to the economy. Projection call for an inflation rate increase to 1.8 percent in 2013.

In Washington, Congress returned and seemed undisturbed by the pending negotiations that could set the country back into recession in a very short time. The inability of Congress to put their political rhetoric aside and act responsibly has been repressing the economy since the fourth quarter 2012.

On Thursday, new unemployment claims surpassed analyst expectations as signs of the political weight on the economy continue to mount.

It appears President Obama will stick to his word on reducing spending and increasing taxes. Republicans can move to the middle or cause another economic collapse. If so, it may be 2014 before Democrats regain the house and finally accomplish meaningful legislation about jobs, guns and immigration.

 

 

 

 

 

 

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