February 10, 2011
The semi-annual FCIB New York International Round Table was dominated by two topics: the potential for inflation and its impact on the economy and, the seeming old-standby, of the growing row between the United States and China on trade/currency values.
Dan North, chief economist at Euler Hermes ACI, told attendees at Wednesday's round table that U.S. monetary policy is clearly setting the stage for strong inflation and a brand new asset bubble thanks in large part to what he characterized as "the evolution of easy money." North said the Federal Reserve's quantitative easing measures essentially amount to little more than printing money, which equates to inflation. And, in such an atmosphere, there are definite winners and losers.
"Creditors lose with inflation; debtors, like the U.S. government, win with inflation," said North. "Some countries now are discouraging investment from foreigners with hot U.S. dollars." He added that once inflation gets started, the Fed will be chasing it for a long time. It is estimated that fighting a surge in inflation takes about 31 months, on average. Strong inflation is reason for concern, North warned.
Meanwhile, North as well as members of an FCIB panel, noted that the United States and China need each other economically and that public shows of power aren't helping anything. After all, 25% of all exports in 2009 were from China and only about 9% of all public U.S. debt was held by the Chinese. So, it's a mutual need.
"We're badgering them to devalue the dollar, but beating them up in public is not a wise strategy," said North. Meanwhile, North implored that the United States cannot afford to fall into the trap of protectionism because China, as well as India, are expected to double the United States' projected share of the world GDP (10%) by 2050.
"There's eight times the amount of people among the Indians and Chinese. Protectionism will no longer be an option," said North. "It's doesn't mean we're not going to be important or prosperous...but it puts us at more risk to growing creditors and losing the U.S. dollar as a global reserve currency." Meanwhile, FCIB panelists note that bigger concerns exist in the necessary relationship with China. Chief among them will be access to markets as well as credit information.
For more insight from FCIB's New York International Round Table event, look for the upcoming March issue of Business Credit magazine.
Brian Shappell, NACM staff writer
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"The state and future of the economy" was the most popular answer in the NACM Monthly Survey for January, which asked "As a credit professional, what are your biggest concerns for 2011?"
Nearly 40% of respondents voiced their ongoing concern with the state of the economy, while the next most popular answer, "slow payment, delinquencies and general customer creditworthiness," received 22% of the votes. Another 10% of participants said their greatest concern was "larger companies dictating unfavorable terms," while 7% said they were most worried about their "job security or the future of [their] career."
Issues such as the international market, the perception of the credit department as a cost center and the process of complying with federal regulations garnered a negligible amount of votes, with each receiving less than 5%.
The top two concerns seemed to go together, as respondents noted that the economy will affect their company's business as much as their customers' ability to pay. "The economy plays a large role in my concern for 2011 with regard to customers, so those two categories should go hand-in-hand," said one participant. Indeed, many seemed to still be waiting to feel the effects of the current uptick in economic indicators. "The state of the economy affects sales, which in turn drives budgets and collections and bad debts," said another participant. "While many of the other concerns exist, it's all about the economy; a rising tide raises all boats."
Political concerns also were hot items among respondents, both in terms of the especially caustic atmosphere in Washington, DC and the recession's devastating effect on local governments and their willingness to pay. "Political bickering, things like the so-called Obama-care health plan and tied-up bank lending policies cause business owners to remain ultra-conservative rather than expanding business opportunities and investments. There is very little confidence to build upon," said one respondent. "Many jobs are either directly or indirectly linked to a government entity, which creates some concern in the payment process as aging of accounts from a state level continue to come in slower than was previously experienced," said another.
Regulations were also of concern, and many noted this would've been their second choice after the overall state of the economy. "Meeting government regulations would be right at the top of the list," said one participant. "We manufacture commercial industrial mowers and for 2011 most of our mowers had to be redesigned to government regulations. New fuel tanks, fuel tank caps and new engines were required."
Comments about the perception of a credit department in a company were usually accompanied by the standing threat of outsourcing of the credit function, which many seemed to associate with a fundamental misunderstanding of credit's role. "Having just gone through a merger, I am concerned with the overall perception of the credit department and the value of keeping the department in house as opposed to outsourcing," said one respondent. "I see a need for us to better sell our value to the sales organization," said another. "We seem to have lost that over the last couple of years because of the lack of large bankruptcies."
This month's survey question deals with exporting in Africa. To participate now, click here.
Jacob Barron, NACM staff writer
Thought for the Day
"Leaders should certainly make sure they are walking in a commendable fashion so that people will want to follow them. If they are just out there spouting proclamations, speaking words and dictating to people, you'll find that the ability to lead is not as great as it could be."
—Tom Flick, Speaking of Success: World Class Experts Share Their Secrets
Flick is this year's General Session keynote speaker at Credit Congress. To find out more about Flick, Speaking of Success and Credit Congress in Nashville, click here.
Early February has marked one of the most news-filled and interesting months regarding international trade in some years, both inside the United States and abroad.
GOP Wants Faster FTA Enactment: President Barack Obama, for months, has been hammering away with the message that the White House has warmed to the idea of being a partner with/friend to U.S. businesses (see story below). And a big part of his message has been the goal to increase exporting activity over the next five years as a way to cancel out the impact of declining consumption among U.S. residents. But while a crucial South Korean Free Trade Agreement (FTA) has been completed, the president's political rivals are bashing Obama on perceived foot-dragging on Bush-era FTA's with Colombia and Panama.
Senate Minority Leader Mitch McConnell (R-KY) was among the politicos throwing the hottest barbs in the direction of the White House, intimating that many in the GOP and the general business community see Obama's trade olive branches as little more than "rhetoric."
"To show he's serious about jobs and the economy, he could work with us to pass free trade agreements with Colombia and Panama that have been languishing for years now," McConnell said. "We welcome the president's support for the South Korea Free Trade Agreement, but by failing to show the same commitment in passing these two other free trade agreements, the president is missing out on an important opportunity to do something good for the economy and for jobs. The president says he wants to double U.S. exports in five years; free trade agreements with Colombia and Panama would go a long way toward meeting that goal."
EU-South Korea FTA: The United States is not the only megapower trying to capitalize on the emergence of the South Korean economy, which has many talking as if they are in line to become one of the BRIC nations along with hot growth economies Brazil, Russia, India and China.
A lopsided vote in the European Union's International Trade Committee (21-4) cleared the way for the popular EU-South Korea FTA to advance to its parliament for a full/final vote as early as next week. The pact is expected to drop trade barriers on manufactured and agricultural goods by eliminating almost all existing import duties by mid-decade.
Turkey to Boost Trade with Iran Threefold: Iran has been a little hard-pressed to find vocal allies among the world's top economies, but a bilateral trade agreement with one of Europe's fastest emerging markets gives the controversial nation a friend in trade, if nothing else.
Turkey, also being thrown into conversations about the next wave of BRIC-type nations, and Iran agreed to triple an existing trade agreement within five years. It would bring the value of their trade partnership to about $30 billion. Turkey has been one of the more outspoken nations calling for a diplomatic approach to resolving the international standoff regarding Iran's nuclear aspirations. The latest trade gesture should carry considerable weight since Turkey is seen as an integral gateway between non-conservative European-style economies and those of more conservative, Muslim-ruled nations.
Much more on Turkey and South Korea, as well as other potential BRIC-inclusions, will be discussed in a feature story in the upcoming March issue of Business Credit magazine. Check www.nacm.org in the coming days to view the online version of this "Global Opportunities" issue.
Brian Shappell, NACM staff writer
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After his inauguration in 2008, it's safe to say that President Barack Obama and the nation's businesses got off on the wrong foot.
Whether it was the recession, the high level of corporate mistrust or simply the differences between ideologies, the president's relationship with American businesses was bound to be challenging. Since then it's been awkward at best and adversarial at worst, with the two parties rarely seeing eye to eye, save for a few spots like infrastructure spending and enhanced exports.
Most recently, however, Obama has made a move to the center in terms of policy, a move that includes extending an olive branch to the business community he's had a hard time winning over. Earlier this week, that took the form of an address to the U.S. Chamber of Commerce that had the president seeking common ground with the nation's employers.
"I'm here today because I am convinced...that we can and must work together," said Obama. "Whatever differences we may have, I know that all of us share a deep, abiding belief in this country, a belief in our people, a belief in the principles that have made America's economy the envy of the world."
The president enumerated the efforts of his administration to ease the cost of doing business in America. "I understand the challenges you face," he said. "I understand you are under incredible pressure to cut costs and keep your margins up. I understand the significance of your obligations to your shareholders and the pressures that are created by quarterly reports. I get it," he added, going on to discuss increased efforts at spurring innovation, easing unnecessary regulations and increasing infrastructure investment. "But ultimately," he added, "winning the future is not just about what the government can do for you to succeed. It's also about what you can do to help America succeed."
While the address was firmly friendly and even occasionally conciliatory, Obama minced no words when it came to business' responsibility to make investment efforts to help reduce the unemployment rate and drag the country out of economic stagnation. "If I've got one message, my message is now is the time to invest in America," he noted. "Today, American companies have nearly $2 trillion sitting on their balance sheets. And I know that many of you have told me that you're waiting for demand to rise before you get off the sidelines and expand, and that with millions of Americans out of work, demand has risen more slowly than any of us would like."
"We're in this together, but many of your own economists and salespeople are now forecasting a healthy increase in demand," said Obama. "So I just want to encourage you to get in the game."
Regarding regulations, which have always been anathema to the U.S. Chamber, Obama urged businesses to reconsider their instinctive opposition to any new efforts to protect consumers or prevent malfeasance. "Not every regulation is bad. Not every regulation is burdensome on business," said the president. "A lot of the regulations that are out there are things that all of us welcome in our lives."
"The perils of too much regulation are also matched by the dangers of too little," Obama added.
In its response to the president's speech, the Chamber sought specifics on Obama's vague promises to reduce redundant regulations and simplify the corporate tax code, and subtly seemed to reject the idea that businesses hadn't done enough to help the country in the past. "To be clear: the American business community is committed to the priorities laid out by the president today," said the Chamber. "We are meeting our responsibility and can do even more if our government takes smart steps to continue to foster business and job growth."
Jacob Barron, NACM staff writer
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Gauging the confidence levels of U.S. businesses has been a bit of a tricky science in the volatile landscape of the recession and more recent lackluster rebound. Often, the level of confidence among said owners depends largely on who you talk to. And even a pair of recent studies from the same source appeared to contain just as much hope as pessimism.
The National Federation of Independent Business' (NFIB) January Index of Small Business Optimism, released on February 8, saw a 1.5-point increase from December. There appear to be some positive signs out there for businesses, including an apparent end to price-cutting and inventory adjustments, said NFIB. But concerns continue to exist, acting as a drag on confidence and thus the potential for growth to kick into another gear.
"Manufacturing and exporting—industries and activities that are not labor intensive—are leading the recovery, while construction—an industry historically dominate by small firms—remains depressed,' said NFIB Chief Economist Bill Dunkelberg. "While recent political rhetoric favors small business, it is belied by the actions of policy makers whose new policies and activities almost exclusively support big business. While the economy is moving forward, albeit at a snail's pace, it is not nearly fast enough to dramatically improve the unemployment situation, which continues to languish."
Five days earlier, Dunkelberg noted that an NFIB survey of 2,144 small business owners found the group hesitant to create new jobs or replace many of those lost during the downturn for that matter. Only 11% of respondents said they were increasing employment at their firms.
"Clearly, there has been no surge in hiring in the last few months...the small business sector continues to underperform on job creation in this recovery compared to other recovery periods."
Brian Shappell, NACM staff writer
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It's a topic that comes up far too seldom. At some point in their careers, it's likely that credit professionals will be faced with the prospect of dealing with unclaimed property issues, also referred to as escheatment.
Each state has a set of procedures and policies used to govern the administration of property that goes unclaimed, and creditors without an eye for it all could lose out or rack up penalties for non-compliance. Recently, unclaimed property enforcement has been on the rise, and though the responsibility for filing reports rarely lies with the credit department, state officials are more closely zeroing in on this section of the corporate world and relying on sharp third-party auditors to assist with accounts receivable credit balances, suspense accounts and customer credit refunds, just to name a few.
To get up to speed on all that the world of unclaimed property has for creditors, join Val Jundt and Sonia Walwyn of the Keane Organization for their upcoming NACM teleconference, "The Credit Manager's Guide to Recent Changes," scheduled for 3:00pm EST on February 14. This presentation is part of NACM's "Added Advantage" teleconference series, offering attendees a full 90 minutes of Jundt and Walwyn's unparalleled expertise on all things escheatment.
Jundt, who serves as Keane's national managing director and leader of its National Consulting and Advisory Services group, brings more than 27 years of diverse and extensive unclaimed property experience to the table. She is a frequently requested NACM speaker, whose other responsibilities have included serving as a national liaison for state/corporate relations, working extensively with clients from all industries and resolving compliance issues arising from state audits, voluntary compliance initiatives, enforcement actions and law changes. Walwyn, who serves as the mid-western regional vice president of Keane's unclaimed property services division, has a similar background having spent her career providing audit defense, compliance outsourcing and proactive services to reduce overall exposure.
To learn more, or to register, click here.
Just two days after the Jundt and Walwyn presentation, NACM all-star construction expert Greg Powelson will present "The Nuts and Bolts of Mechanic's Liens" on February 16 at 3:00pm EST. With his high-energy delivery, Powelson, who serves as director of NACM's Mechanic's Lien and Bond Services (MLBS), will delve heavily into the many things that make construction credit unique, breaking the discipline down to its basic elements and giving creditors the tips they need to navigate their way through the nuances of state lien laws.
To learn more, or to register, click here.
Jacob Barron, NACM staff writer
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