GOP candidates: Fix US economy or fail like Europe

ROCHESTER, Mich.—United in agreement for once, Republican presidential rivals warned forcefully Wednesday night the United States could be doomed to the same sort of financial crisis that is afflicting Europe unless federal deficits are drastically cut and the economy somehow revived.

Though sexual harassment allegations facing Herman Cain have dominated the GOP campaign for more than a week, the debate in economically ailing Michigan focused almost entirely on financial worries and proposed solutions in the U.S.

The candidates generally stuck to practiced speech lines -- with a late exception. In the middle of one answer, Texas Gov. Rick Perry found himself unable to recall the names of all three of the Cabinet-level agencies he wants to eliminate, even leaning over to Rep. Ron Paul for help at one point.

"The third agency of government I would do away with -- the Education, the Commerce. And let's see. I can't. The third one I can't. Oops," he said, forgetting for a moment that he wants to abolish the Department of Energy.

On one specific issue that Congress must address soon, the candidates generally backed an extension of the Social Security payroll tax cut scheduled to expire at the end of the year. That was a rare moment of accord with President Barack Obama and many congressional Democrats, who have been warning that consumers could be hurt if the reduction is not renewed.

"I'm not prepared to raise taxes on working Americans in the middle of a recession that's this bad," said former House Speaker Newt Gingrich, a sentiment quickly seconded by former Massachusetts Gov. Mitt Romney.

Perry disagreed, and Rep. Michelle Bachmann of Minnesota said she opposed the one-year reduction when it was approved late last year. She said it had so far "blown a hole of $100 billion in the Social Security trust fund."

Asked about Europe's financial troubles, the candidates seemed to speak with one voice in saying Italy and other European countries should rise or fall on their own without any American bailout. And several of the White House hopefuls warned that unless U.S. deficits are cut and the economy invigorated, America is headed for the same type of downward spiral.

"Europe is able to take care of their own problems. We don't want to step in and bail out their banks and their economies," former Massachusetts Gov. Mitt Romney said as he and GOP rivals met for the first time in three weeks in campaign debate.

Even so, he said the United States should continue contributing to organizations like the International Monetary Fund that are working to prevent a meltdown in troubled economies overseas.,

Paul was more emphatic about the debt. "You have to let it liquidate. We took 40 years to build up this worldwide debt," he added.

Cain said there wasn't much the United States could do to directly to help Italy at present because the economy there is in such difficult shape. "We need to focus on the economy or we will fail," he said, referring to the U.S. and calling for spending cuts, a strong dollar and measures to stimulate growth.

The Cain accusations did come up, though briefly.

"The American people deserve better than someone being tried in the court of public opinion due to unfounded accusations," he said when the question came up early in the debate. "I value my character and my integrity more than anything else. And for every one person that comes forward with an unfair accusation there are probably, there are thousands who come forward and say none of that ever happened with Herman Cain."

Romney, a former venture capitalist, was asked if he would keep Cain on the job as a CEO given the accusations. He responded, "Herman Cain is the person to respond to these questions. He just did."

On another point, Cain felt it necessary to make a post-debate apology to House Democratic leader Nancy Pelosi, whom he had called "Princess Nancy" for sidetracking Republican legislation when she was speaker.

The announced topic for the evening was the economy, a subject that produced few if any early sparks among rivals who often spar energetically.

Perry, Gingrich, Bachmann and former Pennsylvania Sen. Rick Santorum joined Romney, Cain, Paul and Huntsman on stage at Oakland University in Michigan, a state where unemployment is 11.1 percent and well above the national 9 percent jobless rate.

The debate took place less than two months before Iowa's kickoff caucuses, as the pace of campaign activity accelerates and public opinion polls suggest the race remains quite fluid. Romney and Cain currently share co-front-runner status in most surveys, with Perry and Gingrich roughly tied for third, within striking distance.

Not surprisingly, none of the contenders found much to like in Obama's economic stewardship.

Perry said the next president should systematically judge all of the government regulations enacted since Obama took office on a standard of whether they created jobs. Any that failed should be repealed, he said.

Bachmann sharply criticized Fannie Mae and Freddie Mac. She said the latter had recently given multimillion-dollar bonuses to executives even though it was seeking a new federal bailout.

Gingrich, who last held public office more than a decade ago, bristled when asked what advice his company had given Freddie Mac for a $300,000 fee. "Advice on precisely what they didn't do," he shot back -- stop backing mortgages to applicants who aren't credit-worthy.

The government rescued mortgage giants Fannie Mae and Freddie Mac in September 2008 to cover their losses on soured mortgage loans. Since then, a federal regulator has controlled their financial decisions.

The cost to taxpayers so far has been about $169 billion, the most expensive bailout of the financial crisis.

There was only scant mention of the Michigan auto industry, which benefited in 2008 and 2009 from a federal bailout that both President George W. Bush and Obama backed.

All eight Republicans on the debate stage say they wouldn't have offered government assistance.

Not so Obama, who stood outside a factory not far from the debate site recently and said government bailouts of General Motors and Chrysler were a success that saved thousands of American jobs.

Coffee with a cause

Some of the revenues from the Porpoura Coffee Shop go to cancer patients.

Companies: Porpoura Coffee Shop

Headquarters: Grand Forks, N.D.

Black Friday is the biggest sales day of the year for Porpoura Coffee Shop, the only coffee shop at the more than 70-store Columbia Mall.
"On Black Friday, our sales are 30% more than on a typical day. We're open almost 24 hours that day. It's insane, non-stop and we love it," said Richelle Mewes, co-owner of Porpoura.
Porpoura only sells certified Fair Trade organic coffee, which means their cup o' joe costs a pretty penny. "We're not cheap," said Mewes. "Our coffee probably costs 30% more than Starbucks' coffee."
Nevertheless, shoppers looking for a little fuel to propel them to their next bargain, aren't deterred. The company's unique story also helps.
Mewes and Sarah Heitkamp founded Porpoura in 2006 after winning $50,000 in a Gap Inc. business competition for the best community-based idea. "We wanted to open a business through which we could support low-income patients at the Altru Cancer Center in the area," said Mewes.
With the money, the two opened Porpoura. Today, the company has seven full-time employees and annual revenues of $200,000.
"I'm proud to say that some of them have gone on to become doctors, nurses and lawyers," said Mewes about her employees.
Some of the shop's revenues are used to provide Altru cancer patients with money for lodging, gas and nutrition needed during their treatment. Mewes and Heitkamp have full-time jobs and do not draw salaries from the shop. They are hoping to expand the business.

Shop like a VIP

Bags To Go is hoping to hit pay dirt selling and renting bags to harried Black Friday shoppers.

Companies: Bags To Go

Headquarters: Fort Lauderdale, Fla.

Bags To Go is hoping to bag plenty of business the day after Thanksgiving.
The company already has expertise in airport baggage handling, storage and delivery in busy destinations, such as Miami, Las Vegas and Fort Lauderdale. Now for the first time, it has decided to extend that know-how to the shopping arena.
"This is the first Black Friday that we'll be offering our service to shoppers," said Keith Wiater, president and COO of Bags To Go. The company launched its "bags-free" shopping service at the 350-store Sawgrass Mills Mall in Fort Lauderdale in August this year. "It's already taking off pretty quickly," said Wiater.
Here's how it works: Shoppers can buy a specially designed large bag for $14.99, or rent one for $10 at three Bags To Go locations in the mall. People shop, load up the bags with different purchases and then drop them off at one of the company's stations. "We'll seal it and keep it for you until you're ready to have it delivered to your car," said Wiater.
And consumers don't have to worry about their bags getting lost or mixed up. "We have a special tracker for each bag," Wiater said. On Black Friday, the company will be well-stocked with thousands of bags at the Sawgrass Mills, he said. "It will be busy and I'll make sure I'm there, too," he said.
Given all the interest it's already generating, Bags To Go plans to expand the service to 20 malls next year and offer shoppers the option of delivering bags to their homes, said Wiater.

Black Friday health boost?

Vitamins, weight loss kits and energy drinks fly off the shelves of Complete Nutrition on Black Friday.

Companies: Complete Nutrition

Headquarters: Omaha, Neb.

Coffee and donuts is the breakfast of Black Friday champions. But many shopping enthusiasts still have health on their minds.
Complete Nutrition, a competitor of GNC, sees a 22% jump in sales on Black Friday. "We do really well against the big chains on Black Friday," said Ryan Zink, president of Complete Nutrition. "It's not just gift purchases. People are also buying our products for themselves."
Zink credits two reasons behind Complete Nutrition's Black Friday sales spike: Many people have just had a big Thanksgiving meal and are feeling guilty about having overeaten the night before. Other shoppers want to encourage family and friends to make a healthy start in the New Year.
"So they come and buy our gift kits on Black Friday," said Zink. "Both these trends lend very nicely to what we do."
On the day after Thanksgiving, Zink said Complete Nutrition's 130 stores in 32 states lure in shoppers with buy-one-get-one 50%-off promotions. "Some stores are getting even more aggressive this year with buy-one-get-one-free deals on Black Friday," he said, adding that some Complete Nutrition stores will open as early as 6 a.m. and extend store hours until 9 p.m.
Zink expects this year's sales to be even better. "We expect a 22% to 26% increase that day," he said.

Italy at breaking point; fears grow of euro zone split

By Barry Moody and Andreas Rinke
ROME/BERLIN (Reuters) - Italian borrowing costs reached breaking point on Wednesday after Prime Minister Silvio Berlusconi's insistence on elections instead of an interim government threatened prolonged instability and kindled fears of a split in the euro zone.
European Commission President Jose Manuel Barroso issued a stern warning of the dangers of splitting the zone, rocked by an escalating debt crisis. EU sources told Reuters French and German officials had held discussions on just such a move.
"There cannot be peace and prosperity in the North or in the West of Europe, if there is no peace and prosperity in the South or in the East," Barroso said.
Italian 10-year bond yields shot above the 7 percent level that is widely deemed unsustainable, reflecting an evaporation of investor confidence and prompting German Chancellor Angela Merkel to issue a call to arms.
Merkel said Europe's plight was now so "unpleasant" that deep structural reforms were needed quickly, warning the rest of the world would not wait. "That will mean more Europe, not less Europe," she told a conference in Berlin.
She called for changes in EU treaties after French President Nicolas Sarkozy advocated a two-speed Europe in which euro zone countries accelerate and deepen integration while an expanding group outside the currency bloc stays more loosely connected -- a signal that some members may have to quit the euro.
"It is time for a breakthrough to a new Europe," Merkel said. "A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply can't survive."
The European Central Bank, the only effective bulwark against market attacks, intervened to buy Italian bonds in large amounts but remained reluctant to go further.
Italy has replaced Greece at the center of the crisis and is on the cusp of needing a bailout that Europe cannot afford.
"Financial assistance is not in the cards," one euro zone official said, adding that the bloc was not even considering extending a precautionary credit line to Rome.
Having lost his majority in a parliamentary vote, Berlusconi confirmed he would resign after implementing economic reforms demanded by the European Union, and said Italy must then hold an election in which he would not stand.
He opposed any form of transitional or unity government -- which the opposition and many in the markets favor -- and said polls were not likely until February, leaving a three-month policy vacuum in which markets could create havoc.
Italian President Giorgio Napolitano said there was no doubt about the resignation of Berlusconi once economic reforms were implemented by parliament within days.
"Therefore, within a short time either a new government will be formed...or parliament will be dissolved to immediately begin an electoral campaign," Napolitano said.
Even with the exit of a man who came to symbolize scandal and empty promises, it will not be easy for Italy to convince markets it can cut its huge debt, liberalize the labor market, attack tax evasion and boost productivity.
Worries that the debt crisis could be infiltrating the core of the euro zone were reflected in the spread of 10-year French government bonds over their German equivalent blowing out to a euro era high around 140 basis points.
FRUSTRATION
Policymakers outside the euro area kept up pressure for more decisive action to stop the crisis spreading.
Christine Lagarde, head of the International Monetary Fund, told a financial forum in Beijing that Europe's debt crisis risked plunging the global economy into a Japan-style "lost decade."
"If we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand."
Berlusconi has reluctantly conceded that the IMF can oversee Italian reform efforts.
Euro zone finance ministers agreed on Monday on a road map for leveraging the 17-nation currency bloc's 440-billion-euro ($600 billion) rescue fund to shield larger economies like Italy and Spain from a possible Greek default.
But there are doubts about the efficacy of those complex plans, and with Italy's debt totaling around 1.9 trillion euros even a larger bailout fund could struggle to cope.
Lagarde said she was hopeful the technical details on boosting the European Financial Stability Fund (EFSF) to around 1 trillion euros would be ready by December.
Many outside Europe are calling on the ECB to take a more active role as other major central banks do in acting as lender of last resort. German opposition to that remains implacable, seeing it as a threat to the central bank's independence.
"The ECB will be drawn like everyone else by the weight of gravity (to act)," one euro zone official said.
"CORE" ZONE DISCUSSED
EU sources told Reuters German and French officials had discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone.
The discussions among policymakers in Paris, Berlin and Brussels raise the possibility of one or more countries leaving the zone, while the core pushes to deeper economic integration.
In a speech in Berlin, Barroso said Germany's gross domestic product could contract by 3 percent if the 17-member zone shrank and its economy would shed a million jobs.
"What is more, it would jeopardize the future prosperity of the next generation," he said.
Barroso said any push toward deeper integration should not come at the price of new divisions among EU member states.
GREEK DRAMA
With the markets' fire turned firmly on Italy, Greece's struggle to find a new prime minister became something of a sideshow, but one which demonstrated the difficulty in taking decisive action anywhere within the euro zone.
Greek Prime Minister George Papandreou said he was stepping down without saying who would succeed him as the nation heads toward bankruptcy, but party sources said leaders had agreed it would be the speaker of parliament.
Parties from left and right settled on veteran socialist Filippos Petsalnikos, barring-last minute snags, the sources said, turning to their own political class after ditching a plan to recruit a former top European Central Bank official.
The socialist and conservative parties had wanted former ECB vice-president Lucas Papademos to lead a government of national unity but he appears to have made demands about his level of influence which they could not swallow.
(Additional reporting by Dina Kyriakidou and Lefteris Papadimas in Athens, Emelia Sithole-Matarise, Kirsten Donovan and William James in London; Writing by Mike Peacock; Editing by Janet McBride and Andrew Roche)

China October imports surge as exports wilt

By Aileen Wang and Kevin Yao
BEIJING (Reuters) - China's imports surged in October as exports grew at their slowest rate in months, suggesting efforts to tilt the economy toward domestic demand may be offsetting the external weakness that has dragged on economic growth this year.
Customs figures showed import growth of 28.7 percent year on year in October, well ahead of the 23.0 percent forecast and far in excess of September's 20.9 percent growth rate.
Headline growth in exports meanwhile was its most sluggish in eight months, but strip out the traditionally volatile month of February and October's growth of 15.9 percent was the slowest since November 2009 when they shrank.
"We were expecting quite a deceleration as external demand continues to decline in Western economies," said Donna Kwok, an economist at HSBC in Hong Kong. "But the key thing to look at here is the strength of the domestic demand factors as imports grew nearly 29 percent."
Markets showed scant reaction to the data since investment sentiment is being driven by events in Europe.
Imports from all three of China's key trading partners surged.
The rate of import growth from the United States accelerated the fastest at 20.5 percent over a year earlier, jumping by 7.6 percentage points from September's pace.
Imports from resource-rich Australia grew at 36.7 percent versus September's 33.4 percent, while European Union imports rose 28.2 percent versus 25.7 percent previously.
QUIETENING CRITICS
The surprise imports surge limited October's trade surplus to $17 billion, much lower than a forecast for $24.9 billion.
That may go some way to satisfying critics who say China keeps its currency weak to support exports -- despite evidence to the contrary in the form of an appreciation of the yuan of some 40 percent in real effective exchange rate terms since 2005 when Beijing abandoned a long-standing currency peg.
China's government has been working hard to wean the world's number two economy off of what many analysts say is an addiction to export-led growth.
Others dismiss the notion that exports are so significant to Chinese growth, pointing instead to the infrastructure and consumer demand created by massive urbanization that draws millions of rural workers into China's fast-expanding cities every year.
The rate of fixed asset investment growth -- a principal driver of economic expansion in China -- was running at 24.9 percent year on year in the first 10 months of 2011, data showed Wednesday, again underscoring domestic economic resilience.
That kind of expansion in infrastructure spending though could also distort the view of the underlying rebalancing of growth and the ability of the consumer sector to compensate for an extended sharp decline in external demand.
"I think the underlying (export) weakness is perhaps even weaker," said Li Cui, an economist at Royal Bank of Scotland in Hong Kong. "My estimation is that the real growth could only be around 7-8 percent, adjusting for export prices."
"The strength of imports is stronger than expected. It shows the underlying industrial demand is fairly solid. Also, it's likely that the inventory building still continues, partly because of the declining global prices. The producers take this opportunity to build their inventories," he added.
INVENTORY BUILDING
But it's that inventory build that signals the possibility of risks ahead to analysts at IHS Global Insight, who are concerned that final domestic demand may not keep pace with the level of stock building.
"Going forward, we'd expect import growth to slow as the lag of monetary policy catches up with the economic cycle," IHS senior analyst Ren Xianfang wrote in a note to clients.
China has hiked interest rates five times since October 2010 and raised the amount of reserves banks must park at the central bank -- thus cutting the amount of credit available in the economy -- nine times over the same period in a bid to tame inflation that hit a three-year peak of 6.5 percent in July.
If that tightening has not yet fully filtered through into the domestic sector, there could be a couple of particularly poor quarters of growth ahead as the impact from a sharply-slowing external sector are amplified.
The rate of growth of China's exports to the European Union and Australia both declined year-on-year in October versus September, according to Reuters calculations -- down to 7.5 percent from 9.8 percent and to 16.1 percent from 21.4 percent, respectively.
Exports to the United States meanwhile increased by 13.9 percent year-on-year in October versus September's 11.6 percent expansion.
China's leaders have begun talking in recent weeks about "fine tuning" macroeconomic policy to maintain economic growth, which slowed in the third quarter to 9.1 percent, its weakest in more than two years.
And it's that sense that the leadership has already turned its attention to growth and is gradually recalibrating policy in that direction which economists say reduces the risk of a hard economic landing for China.
"Domestic demand is still resilient and may suggest that the economy would only slow down in a gradual way," said Wang Hu, an analyst at Guotai Junan Securities in Shanghai. "But (there is) no risk of a sharp slowdown."
(Reporting by Aileen Wang, Kevin Yao; Writing by Nick Edwards; Editing by Neil Fullick)

Ad growth, economic impact key for Disney quarter

By Lisa Richwine
LOS ANGELES (Reuters) - Walt Disney Co will seek to reassure Wall Street that global economic woes have not hurt its nearly $11 billion parks and resorts business or held back an advertising rebound at ESPN and its other cable networks.
Disney is expected once again to deliver a solid quarter led by growth at the media and parks divisions when the company releases results on Thursday.
That would extend a pattern of steady gains under Chief Executive Bob Iger, who announced last month he will step down as CEO after March 2015.
Last quarter, the company's shares tumbled 15 percent the day after executives warned about higher programing and production costs at ESPN, lower syndication sales at ABC and tough year-over-year comparisons for its studio division in the just-ended fourth quarter.
With those issues laid out, analysts are betting on few surprises and a revenue increase of about 6 percent. But some remain nervous that slowing growth and economic uncertainty across the United States and Europe will give travelers pause.
"I don't think there's a lot of mystery on the numbers," said Wunderlich Securities analyst Matthew Harrigan. "What's of more concern is how the economy is."
"That certainly affects the parks" as well as advertising at media networks, Harrigan said.
Morningstar analyst Michael Corty said Disney had run the parks business well through the unsteady economy by weaning customers off of earlier discounts. Investors will turn their focus to guidance for next year.
"They should have some visibility into what their bookings look like" for the coming months including spring break, Corty said.
Overall, Disney's results should reflect advertising strength already reported by media rivals Comcast Corp, Time Warner Inc and News Corp, analysts said.
Competitors reported higher quarterly earnings as advertisers continued to buy commercial time, particularly on cable television.
Disney shares have gained about 1.7 percent since the company last reported results in early August.
ESPN, one of the industry's most successful cable channels, should lead the media division higher as advertisers continue to flock to sports programing.
The company's studio division, often a swing factor for results, had hits in the quarter with drama "The Help" and a 3D makeover of classic "The Lion King." But that showing will be compared to blockbuster animated movie "Toy Story 3" and other successes last year.
Iger may face questions from analysts about who will succeed him in the CEO job. Theme parks chief Tom Staggs and Chief Financial Officer Jay Rasulo are seen as leading candidates.
Analysts on average expect Disney to report fiscal fourth-quarter earnings of 55 cents per share, according to Thomson Reuters I/B/E/S. Revenue is forecast to rise 6.3 percent from a year earlier to $10.4 billion.
(Reporting by Lisa Richwine, editing by Bernard Orr)