By Dees Stribling, Contributing Editor
There’s a bit of optimism these days among some economists regarding the U.S. economy, according to the latest National Association for Business Economics’ Industry Survey, with fully 65 percent of the respondents expecting real GDP growth to increase more than 2 percent between the fourth quarter of 2011 and the fourth quarter of 2012. This time last year, only 16 percent of NABE survey respondents expected the economy to do even that well—which really isn’t that well, but it’s better than a recession—during the period between the fourth quarter of 2010 and the same quarter in 2011.
An overwhelming majority of the survey respondents, 80 percent, reported unchanged or rising sales and profit margins. Nearly as many, 78 percent, reported unchanged prices, and almost all of the respondents expected either no change in prices or minor price increases of 5 percent or less by their companies in 2012. Over 70 percent of the respondents reported that wages and salaries have remained unchanged. These findings suggest that, for now anyway, the economy is experiencing little in the way of inflation or deflation.
“Surprisingly, a significant share of the respondents are not overly concerned about the impact on their businesses of the European debt crisis, the payroll tax cut, or the Super Committee’s lack of success in developing debt reduction plans,” noted Nayantara Hensel, professor of industry and business at National Defense University, in a statement regarding the survey findings. The NABE is a professional association of business economists and others who use economics in their workplace, and the survey recorded the responds of 63 NABE members late in 2011 and early this year.
IMF chief urges euro-zone “firewall”
The latest buzzword to emerge from the euro-zone crisis is “firewall,” as in, Europe needs bigger firewalls to keep it from giving other major economies bad cases of smoke inhalation from the fires that the EU, ECB, IMF, Germany and France haven’t been able to extinguish. At its heart, a firewall is an entity sufficiently flush enough to lend troubled euro-zone nations enough money to tide them over. That raises the question: What’s the difference between a firewall and a bailout?
Christine Lagarde, managing director of the IMF, took up that question in a speech in Berlin on Monday. She used the term “firewall” a number of times during the speech. By contrast, she only used the term “bailout” once, in the context of denying that euro-zone bailouts were really occurring.
When it comes to saving Europe, Lagarde said, “there are three imperatives—stronger growth, larger firewalls and deeper integration.” Specifically, without a larger firewall, “countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal financing costs…”
And how to build a bigger firewall? More money for her own organization, and “adding substantial real resources to what is currently available by folding the EFSF into the ESM, increasing the size of the ESM, and identifying a clear and credible timetable for making it operational would help greatly.” (The EFSF is the temporary European Financial Stability Fund and the ESM is the still-unrealized permanent European Stability Mechanism; together they would be a really big pot of euros.)
These resources would not, Lagarde stressed, be used to “bail out” European economies, though the difference between bailing out and building a firewall is one of the high-finance subtitles that might be lost on taxpayers in strong euro-zone countries footing the bill. “Any support we provide to euro-area countries must be anchored in a clear policy framework for the entire euro area,” she said. “To safeguard our members’ resources, we have a responsibility to lend into sustainable debt positions. Our role is to catalyze, not indefinitely replace, private financing.”
Oil, Greek bonds remain worrisome
The EU voted on Monday to embargo Iranian oil, following the lead of the United States. Naturally, the move elicited dark mutterings from the Iranians about the closure of the Straits of Hormuz, which is the jugular vein of the international trade in crude oil. In response, the price of oil rose about 1 percent—not a jump of panicky proportions, but maybe a nervous clearing of the throat. Iran has muttered like this before.
Separately on Monday, euro-zone finance ministers put the squeeze on Greek bondholders, who have lately agreed to a “voluntary” 50 percent haircut on their holdings, but were balking at taking less than 4 percent on the newly issued bonds that will replace the existing bonds. The euro-zone ministers are insisting on the low rate, the better to control Greece’s chronic debt problem. They are probably using polite banker language, but are in essence telling the bondholders to get with the program, or risk getting nothing.
Wall Street started off in fine fettle on Monday, but investors were spooked later in the day, only to recover toward the end, with the equities markets close to breaking even. The Dow Jones Industrial Average lost a Lilliputian 11.66 points, or 0.09 percent, as did the Nasdaq. The S&P 500 was down an even smaller 0.05 percent.