Sunday, March 3, 2013

A Comedian, a Media Mogul, a Technocrat, U.S. Budget Cuts and a Jedi Mind Meld

Beppe Grillo
Last week, as Italy continued to face a deep recession, its citizens voted for a new Prime Minister. The outcome: Mario Monti, a technocrat who served as Prime Minister for the past 15 months and introduced significant economic reforms received a disappointing 10% of the vote; former Prime Minister Silvio Berlusconi, a billionaire media mogul, often associated with scandals – and promoting an anti-austerity agenda in this election, received 30%,; Beppe Grillo, a comedian, blogger and social activist received 25% and Pier Luigi Bersani, considered the favorite, had a slight lead over Berlusconi. This fragmented result sent many global market tumbling early in the week, but there was a quick recovery as well. (Note: Italy is the Eurozone’s third-largest economy, and its public debt is almost 130% of GDP, a level that is considered unsustainable).

Separately, on Friday, White House and U.S. Congressional leaders failed to make progress on avoiding an automatic $85 billion in budget cuts. While answering questions on this topic, President Obama said, "Even though most people agree that I'm being reasonable; that most people agree I'm presenting a fair deal; the fact is they [shouldn’t] take it to mean that I should somehow do a Jedi mind meld with these folks and convince them to do what's right." (The media and the Internet picked on his mixing of Star Wars’ Jedi Knights and Star Trek’s Vulcan Mind Meld terminology). House of Representatives Speaker John Boehner said, “The discussion about revenue, in my view, is over. It's about taking on the spending problem".

MY TAKE
  • Regarding Italy’s mixed election results - the lack of consensus highlights the gap between the objectives of some policy makers and those of many voters. The anti-austerity support by voters may lead to anti-Eurozone sentiment and could trigger increased tension in the region.
  • Regarding the U.S. budget talks - while tedium is likely increasing among many of the players, the scale of the debt problem will persist.
  • Regarding the global markets - some investors believe the worst is behind us and markets will remain resilient. At the same time, given the extraordinary stimulus efforts by global central bankers, it is equally possible that we are in an “overly medicated environment” where decision-making may become less focused and the potential for mistakes may increase.

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