September 17, 2019

Senators in Italy Pass Plan for Budget

Although it has a parliamentary majority, the month-old technocratic government of Prime Minister Mario Monti called a confidence vote on the measures to avoid having to address modifications proposed by the Northern League, once a pillar of former Prime Minister Silvio Berlusconi’s center-right coalition and now the loudest opposition party.

The measures — which have grown increasingly unpopular as the reality sets in for Italians — reinstate a property tax on first homes, among other tax increases; raise the retirement age to 66 for men and 62 for women by 2012; and raise the ceiling for cash transactions to $1,300, among other measures to crack down on tax evasion.

The government has said that it tried to spread the pain among all segments of society and not just hit what many call “the usual suspects” — taxpaying salaried employees who often take the brunt of tax increases because tax evasion among nonsalaried workers is so high.

Mr. Monti — a former European commissioner and university president who must work with a Parliament whose largest bloc, the center-right, is eager for early elections to solidify its political standing — has said that the bywords of his government are “equity,” “rigor” and “growth.”

To stimulate growth — which remained flat at 0.3 percent in Italy over the past decade — the measures also provide tax incentives for businesses that hire women and people under 35 on permanent contracts. Business groups have called for even more sweeteners to prevent the economy from contracting further.

In a speech just before the vote, Mr. Monti underlined the need to orient European economic policies more toward growth, rather than just concentrating on fiscal discipline. Calling the measures a “proof of collective discipline,” Mr. Monti said that the package enabled Italy to hold its head high as it faces the undeniably serious European crisis.

Although Mr. Monti still enjoys broad political and popular support, the measures have become increasingly unpopular in a growing climate of economic uncertainty, in a country that is already in recession, and where salaries have remained flat in recent years.

“I know that we all have to cooperate and that the measures were needed, but my feeling is that they always turn to the same people, like pensioners or those with low salaries,” said Maurizio Capecci, an unemployed 57-year-old who sells lottery tickets during the Christmas season in downtown Rome. “I think the government should have introduced a wealth tax. Why can’t those who have more give more, but for real?”

A strike called by labor unions shut down national transportation last week, and more strikes are anticipated in the coming months to protest changes in pension rules and labor contracts. Mr. Monti’s government has said that it is planning to tackle labor reform — long a third rail in Italian politics — in the new year.

Gaia Pianigiani contributed reporting.

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As Plastic Reigns, the Treasury Slows Its Printing Presses

The meaning seems clear. The future is here. Cash is in decline.

You can’t use it for online purchases, nor on many airplanes to buy snacks or duty-free goods. Last year, 36 percent of taxi fares in New York were paid with plastic. At Commerce, a restaurant in the West Village in Manhattan, the bar menus read, “Credit cards only. No cash please. Thank you.”

There is no definitive data on all of this. Cash transactions are notoriously hard to track, in part because people use cash when they do not want to be tracked. But a simple ratio is illuminating. In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity.

“This morning I bought a gallon of milk for $2.50 at a Mobil station, and I paid with my credit card,” said Tony Zazula, co-owner of Commerce restaurant, who spoke with a reporter while traveling in upstate New York. “I do carry a little cash, but only for gratuities.”

It is easy to look down the slope of this trend and predict the end of paper currency. Easy, but probably wrong. Most Americans prefer to use cash at least some of the time, and even those who do not, like Mr. Zazula, grudgingly concede they cannot live without it.

Currency remains the best available technology for paying baby sitters and tipping bellhops. Many small businesses — estimates range from one-third to half — won’t accept plastic. And criminals prefer cash. Whitey Bulger, the Boston gangster who lived in Santa Monica for 15 years, paid his rent in cash, and stashed thousands of dollars in his apartment walls.

Indeed, cash remains so pervasive, and the pace of change so slow, that Ron Shevlin, an analyst with the Boston research firm Aite Group, recently calculated that Americans would still be using paper currency in 200 years.

“Cash works for us,” Mr. Shevlin said.  “The downward trend is clear, but change advocates always overestimate how quickly these things will happen.”

Production of paper currency is declining much more quickly than actual currency use because the bills are lasting longer. Thanks to technological advances, the average dollar bill now circulates for 40 months, up from 18 months two decades ago, according to Federal Reserve estimates.

Banks regularly send stacks of old notes to the Fed, which replaces the damaged ones. Until recently, notes were simply stacked facedown and destroyed, as were dog-eared notes, because the Fed’s scanning equipment could not distinguish between creases and tears. Now it can. In 1989, the Fed replaced 46 percent of returned dollar bills. Last year it replaced 21 percent. The rest of the notes were returned to circulation where they may lead longer lives because they are being used less often.

The futurists who have long predicted the end of paper money also underestimated the rise of the $100 bill as one of America’s most popular exports.

For two decades, since the fall of the Soviet Union, demand has exploded for the $100 bill, which is hoarded like gold in unstable places. Last year Treasury printed more $100 bills than dollar bills for the first time. There are now more than seven billion pictures of Benjamin Franklin in circulation — and the Federal Reserve’s best guess is that two-thirds are held by foreigners. American soldiers searching one of Saddam Hussein’s palaces in 2003 found about $650 million in fresh $100 bills.

This is very profitable for the United States. Currency is printed by the Treasury and issued by the Federal Reserve. The central bank pays the Treasury for the cost of production — about 10 cents a note — then exchanges the notes at face value for securities that pay interest. The more money it issues, the more interest it earns. And each year the Fed returns to the Treasury a windfall called a seigniorage payment, which last year exceeded $20 billion.

To meet foreign demand, the Fed has licensed banks to operate currency distribution warehouses in London, Frankfurt, Singapore and other financial centers.

In March, largely because of the boom in $100 notes, the value of all American notes in circulation topped $1 trillion for the first time.

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