Great Graphic: Italy's GDP

Here is a Great Graphic from the Wall Street Journal. It shows the poor record Italy has had since 2000 in generating growth.  What is does not show is that Italy still appears to be losing competitiveness.   Look at the August inflation numbers for a snap shot.  Italy's CPI is up 3.2% on a year-over-year basis.  This is the highest in the euro zone and compares with the region's 2.6% pace.  Germany and France reported 2.1%.  Spain's CPI is 2.7%.  

In a broader sense, Italy's unit labor costs rose by nearly a third since 2000. While the unit labor costs of Greece, Ireland, Portugal and Spain have been trending lower since 2008, Italy's still appears to be rising.  

While it seems fashionable to believe that the combination of Draghi's plan, the German Constitutional Court ruling in favor of ESM has turned the corner, color me skeptical.  One WSJ article quotes a currency strategist suggesting that Europe's dirty laundry has been aired (but not America's), I am remain less convinced.  Ultimately, Europe is still wedded to austerity.  The Dutch election may have been a setback for the euro-skeptics, but there is no end in sight for austerity.  This has political and social implications on top of condemning Europe to prolonged slow growth if not stagnation.  

The open-ended QE announced by the Fed underscores the commitment to a growth strategy by the US and the differences with Europe.  I think that in the medium and longer term, the US better growth prospects will be rewarded by investors.  In the immediate term, as I have been acknowledging (like here and here), my reading of the dollar's technical condition warned against picking a bottom quite yet. I continue to look for some reversal pattern or indication that a low is near.  

The fiscal cliff is indeed looming and Moody's reminded us this week of the rating implications, but this is not what the market appears to be trading on.  Despite the partisanship about fiscal excesses under this Administration, the government sector has been and continues to be a drag on US growth.  The federal government simply did not spend enough money to offset the contraction on state and local levels.