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Playing with fire America's leaders are like generals who send the sons and daughters of others into battle with a take-the-hill-at-any-cost mentality. As they dicker and brawl over their legislative debt ceiling, they're playing with the lives of countless others around the globe.
This could all play out in a variety of ways - politicians could yet strike a deal, there could be a stop-gap agreement, short-term funding could be put in place, or, at its worst, the U.S. could face a downgrade or default - but confidence in America will fade no matter the outcome.
If a stalemate continued in earnest, and the Treasury actually began missing payments, then look out.
"If the debt ceiling is not raised, the result would almost certainly be a recession," strategists at RBC said yesterday. "In order to avoid blowing through the ceiling once early August rolls around, the spending cuts needed would equate to about 5 per cent of annual GDP."
As The Globe and Mail's Brian Milner writes today, a worst-case scenario could lead to delayed spending, higher borrowing costs and, potentially, another recession that would ripple through the global economy. Remember Lehman Brothers?
"No matter what, the uncertainty and divisiveness in the U.S. bodes poorly for a continued economic recovery," warns Sherry Cooper, the chief economist at Bank of Montreal.
"Combine this with the continuing weakness in Europe and the fiscal issues in Japan, and the global recovery is at serious risk and the emerging world may not be sufficiently strong to bail out the rest of us. Canada is not immune to this contagion. We have already been slowed by the weak U.S. economy and the recent surge in the Canadian dollar will only compromise further our competitive position."
In Burlington, Ont., today, Canada's Finance Minister Jim Flaherty said that, though he's confident of a deal in the United States, Ottawa is still concerned.
"This is an issue that has consequences for not only the United States but the global economy because of the reliance of the global economy on U.S. Treasuries," he said, as The Globe and Mail's Rita Trichur reports.
Then there's the potential impact on the global financial system, which has already been to hell and back, should there be an actual default.
"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," said Carl Weinberg, chief economist at High Frequency Economics.
"If that default is imminent - even more imminent than it already is, so investors start to pay it attention - risky assets like stocks will be sold," Mr. Weinberg said in a research note today.
"Selling bonds would offer little safety for anyone because you would have to put the proceeds of the sale somewhere, and no bank would be safe. This is the dark side of the debt-limit standoff in Washington right now: The whole global economy is inadvertently put at risk as Congress looks for the right combination of compromises to avert a disaster."
This is not like Europe, where countries like Greece became deadbeats through bungling. This is politics, and the Americans need to put that aside because they have a responsibility to the rest of the world. People have lost their jobs and their homes, businesses have failed, and wealth has been eroded. It's time to focus on the recovery, not the next election.
- U.S. debt situation 'very worrisome': Flaherty
- The debt crisis and its potential fallout
- U.S. to lose triple-A rating: poll
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.
"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."
- U.S. debt showdown: What happens on Aug 3?
- Obama warns default would risk 'deep economic crisis'
- Thrift trumps spending in U.S. debt talks
- Dollar hits highest level since November, 2007
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.
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.
- Cenovus earns $655-million profit
- Ford profit tops expectations
- Chrysler reports Q2 loss due to bailout repayment
- BP earnings below forecast
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