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Sunday, November 13, 2011

No news coming out of Republican debate

Tony Paradiso

I was terribly disappointed with the CNBC-hosted Republican debate. Granted, the debate – focused solely on economic issues – was probably the most substantive to date. And the candidates – at least most of them – comported themselves well.

The problem was that I expected to get two columns worth of good material from the event, and it yielded barely two paragraphs. Sure, there was the apparently malfunctioning Herman Cain pull-string candidate toy who answered 9-9-9 to almost every question. Newt’s gratuitous barbs at the media were mildly entertaining. And Mitt – the president Ken doll – Romney continued to look the most presidential. Then again, so did Mr. Obama.

If it weren’t for Rick Perry, the entire debate would have been for naught. Who could have predicted that between Texas governors Perry and Bush, George would be the more likely to get an invite from Mensa.

See what I mean? Two lousy paragraphs. But I suppose I’m obligated to at least summarize the proceedings.

You’ll be happy to know that if Romney, Cain or Ron Paul should be elected and Italy fails, it will be Europe’s problem. The fact that a tidal wave of crap might be swept to our shores is apparently irrelevant. More on Italy in a moment.

Here’s an interesting note: According to Mr. Romney, it was the CAFE standards that allowed Japan to rise to dominance in the car industry. You learn something every day. I thought it was because Japan better assessed the market’s needs and built better products while Detroit struggled to get its head out of its collective butt. But I stand corrected.

Interestingly, Romney maintained his position that the auto bailout was wrong. Of all the things not to flip-flop on. I was also against the bailout, but I have to say, although taxpayers won’t get their entire investment back, the money spent provided much more bang for the buck than the stimulus package.

As for bailouts, there seemed to be a consensus that none of the Republican candidates would again bail out a private-sector entity. Let’s hope that if a Republican wins the White House, Wall Street will mind its Ps and Qs for the duration of their term.

Rick Santorum … oh, never mind, what’s the difference what Rick Santorum had to say?

Rick Perry vowed to revamp the tax code and streamline Washington. He would dismantle the Department of Commerce, the Department of Education, and the … the … uh … Department of … what was that third department? Sorry, I couldn’t resist. It was sad, but not as sad as it would be if we elected this jamoke president. To Perry’s credit, his appearance on Letterman was funny.

Another theme was overregulation. It’s killing the housing market, it’s killing the banks, and it’s killing business in general. There’s one group I know it’s not killing: Wall Street. They seem very adept at avoiding any regulation that constrains their ability to reap massive profits for doing very little.

Governors will be happy to know that many of the candidates would restructure Medicaid by “allowing” the states to address the problem at the local level. Translation: They plan to punt the problem to the states and let them worry about how to finance the escalating costs.

Now, back to Italy. Worries over its financial situation sent markets tumbling Wednesday. With yields on Italy’s 10-year notes breaching the 7 percent mark, things got dicey. To give you some perspective, German bonds have a yield – or interest rate – of 1.75 percent.

Italy owes a boatload of money. This precarious financial situation causes bond yields to rise, thus exasperating the situation by increasing borrowing costs. To increase lenders’ confidence and lower bond yields, they must enact severe austerity programs. But the consequence of austerity is slower economic growth, which inhibits the ability to repay the debt. Rock, say hello to hard place.

Following Greece’s lead, Italy will be changing governments. They also will be attempting to revamp their financial house by increasing the retirement age and creating more flexible labor laws. Both moves are wise but painful. The hope is that these measures will ease the level of fear in the bond markets and help stabilize interest rates.

Tomorrow, Italy will conduct an auction of five-year bonds. The success or failure of that auction likely will influence the tone of the markets. If yields continue to rise, expect the markets to struggle.

Here’s the good news: The changes that need to be made ultimately will strengthen these counties. The process will be difficult, and it will cause short-term economic disruptions. However, it will yield a healthier global economy.

The other good news is that our economy continues to show signs of strengthening, albeit in baby steps. But notwithstanding the dysfunction in Washington, the actual generators of economic growth – businesses – are doing a bit better.

The bad news is that economists have reduced the consensus likelihood of a recession from the previous 1 in 3 to 1 in 4. This almost ensures that we will experience a recession in 2012. Fortunately, as I’ve said before, I expect it to be a little one.

Author, professor, entrepreneur, radio and TV commentator Tony Paradiso is a marketing and management expert.