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(Roger Hallett)
(Roger Hallett)

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Ten questions for those who can't imagine U.S. defaulting Add to ...

These are stories Report on Business is following Tuesday, July 26. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Ten questions for non-believers Global stock markets may be anxious, but they're largely shrugging off fears that U.S. politicians will fail to meet their Aug. 2 deadline to raise the debt ceiling, potentially sparking a credit downgrade and default. Most observers expect politicians will take it to the wire and settle their differences, though the U.S. dollar has been a victim of the uncertainty.

I, too, can't believe that a default, even a short-lived one, is in the cards. But is that because we can't believe it, or can't bring ourselves to believe it, simply because such an event is unfathomable based on history and the might of the United States.

All of which got me thinking: Just five years ago, who would have believed that:

  • The global economy would plunge into its worst slump since the Great Depression.
  • The global financial system would be brought to the brink of collapse.
  • Bear Stearns Cos. would disappear from the Street, Lehman Bros. would fail, and Merill Lynch & Co. (the banker with the bull logo) would be sold to Bank of America.
  • The American dream would be shattered as the U.S. housing market melted down and foreclosure became an oft-heard word.
  • Countries such as Greece, Ireland and Portugal would be deadbeats, and the 17-member euro zone in tatters.
  • The U.S. dollar would become an also-ran, and the Canadian dollar, then just above 88 cents, closing in on its modern-era high of $1.10 U.S.
  • That GM and Chrysler would file for bankruptcy protection.
  • That more than 200 million people would be unemployed globally, according to the International Labour Organization.
  • That global interest rates would remain so low - near zero in the United States - for so long.
  • That "bailout" would become a household term.

The Republicans and Democrats continue to squabble today as the clock ticks ever more loudly, with no deal in sight. And perhaps the markets need to adjust their willing suspension of disbelief.

"What is key in the debate ... is that both the Republicans and Democrats are behaving like Europe's leaders did until recently in choosing to ignore rating agency guidance," said Karen Cordes Woods and Derek Holt of Scotia Capital.

"That's because both of their proposals would fail to meet S&P's requirement for a bipartisan agreement toward about $4-trillion in budgetary savings over the next 10 years. Neither the GOP's $3-trillion two-step dance with some delivered now and the rest after the creation of yet another committee oriented toward reaching agreement on further cuts early next year, nor the Democrats $2.7-trillion vague outline (for example, unspecified savings at GSEs) would meet the bar. If either plan is the best that Washington can deliver, then a downgrade seems likely as they both fall short on the headline tally and the underlying details."

Carl Weinberg, the chief economist at High Frequency Economics, is somewhat more harsh in his warning today:

"Everyone was, and still is to some extent, worried about the impact of a default by Greece on Euroland banks. Shouldn't everyone also be worried about the impact on that same banking system of a default by the United States? The answer is, of course, and this applies to Swiss and Japanese banks, as well as to Euroland, British and North American banks. The irony of the flight into Swiss francs, yen and loonies out of U.S. dollars as the U.S. Congress dawdles is this: No place on earth that has banks and uses money is safe if the U.S. government defaults."

Consumer confidence slips Canadians are becoming ever more cautious in a climate of uncertainty. Consumer confidence in Canada slipped for the third month in a row in July as Canadians fretted about job prospects, The Conference Board of Canada said today.

It's consumer confidence index dipped 1.8 points to 81.3, the group said.

"The bulk of consumer pessimism this month came from the outlook for future job opportunities - despite the fact that the Canadian economy has generated nearly 200,000 jobs since the start of the year," it added.

Markets mixed Global markets certainly aren't in panic mode, despite the debt warnings of President Barack Obama last night.

Tokyo's benchmark Nikkei climbed 0.5 per cent, and Hong Kong's Hang Seng 1.3 per cent. In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were mixed by about 8:45 a.m. ET. Dow Jones industrial average and S&P 500 were little changed.

Blame it on the royals Britain's economy grew just 0.2 per cent in the second quarter. But honestly, folks, it would have been a better showing had William not wed Kate and everyone headed to work as normal.

The Office for National Statistics today cited several "special events" that held back economic growth:

  • The royal wedding.
  • The extra holiday for the wedding.
  • The after-effects of the mid-March devastation in Japan.
  • The first phase of Olympic ticket sales.
  • Record warm temperatures in April.

Without those developments, growth could have been 0.7 per cent, the ONS said, though "There can be no certainty as to the impact of the special events and there may be other factors at play." But it used "standard statistical techniques" for what otherwise might have been, not that William and Kate would have held off.

Still, said CMC Markets analyst Michael Hewson, that may show the potential is there.

"With growth in Europe also slowing down as well as across the globe, politicians may have to get used to the fact that subpar growth will be the new normal for some time to come," Mr. Hewson said. "One thing is certain; the prospects of further rate hikes appear to have receded further into 2012 with these figures. "

Rogers profit dips Rogers Communications Inc. today posted modest second-quarter results, beating analyst expectations slightly as profit slipped by 9 per cent and revenue increased by about 3 per cent.

The results come at a time when Rogers management has been focused on fending off not only a surge of wireless competition from both incumbent rivals and newer start-ups, but also renewed TV competition from BCE Inc., Globe and Mail telecom writer Iain Marlow reports.

Rogers earned $410-million or 75 cents a share, down from $452-million or 78 cents a year earlier. Revenue climbed to $3.12-billion.

Cenovus profit jumps Cenovus Energy Inc. , the company divorced from Encana, posted sharply higher second-quarter profits today and lauded its operations in the oil sands.

Cenovus earned $655-million or 85 cents a share, compared to $183-million or 24 cents a year earlier.

Oil production dipped 5 per cent in the quarter, for reasons both "planned and unforeseen," the company said in a statement.

"Despite the second quarter impacts on production, we continue to be comfortable with our total oil volume guidance for the year of about 130,000 barrels per day," said chief executive officer Brian Ferguson.

"We're looking forward to increased production from our oil sands projects as we continue to expand at both Foster Creek and Christina Lake . Our strong balance sheet and excellent cash flow allow the company to invest now in these two major oil sands assets, as well as other emerging projects, which will help drive an expected six-fold increase in oil sands production by the end of 2021."

Rogers and Cenovus were just two of several companies to report results today.

In International Business today Now playing: Movies at Walmart.com. The world's largest retailer today started streaming many movies the same day they come out on DVD, in a second bid for a share of popular movie rental and streaming website Netflix Inc.'s business and just two weeks after Netflix announced new price increases. Mae Anderson of The Associated Press reports.

George Soros, whose stock-picking career has spanned nearly four decades, said he will manage money only for himself as new regulations threaten to crimp the hedge fund industry he made famous. Reuters reports.

In Economy today India's central bank raised its key interest rate by half a percentage point today, the 11th hike in less than a year and a half, as it warned that inflation remains the country's main economic concern, Katy Daigle of The Associated Press writes.

In the eyes of the world's currency traders, Switzerland is golden again. The Swiss franc jumped nearly 2 per cent against the U.S. dollar yesterday, its biggest gain in nearly two months, as continued jitters over U.S. and euro-zone debt troubles sent investors once again scurrying for safety. The Globe and Mail's David Parkinson reports.

From today's Report on Business

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