March 17, 2011
The scope of the massive human tragedy caused by a strong earthquake just off the Japanese coast that triggered more troubling tsunamis and radiation leaks at damaged nuclear power plants remains undetermined nearly a week after the initial disaster. Though a growing number of economists are projecting confidence in predicting its ultimate impact there and globally, with some saying it will actually be "good" for economic growth, several economists contacted by NACM said the reality remains extremely difficult to forecast.
Part of what is clouding the issue is that aftershocks continue to hit, triggering new tsunami warnings, and it is unknown exactly how efforts to prevent full-on meltdowns at multiple nuclear reactors will play out. These uncertainties have made rescue efforts difficult and power hard to come by for millions of people, not to mention businesses of varying sizes. The latter has affected the production capacity of Japan, the world's third-largest economy. Particularly troublesome for industries worldwide is that the region hardest hit has significant ties to the manufacturing of automotive parts and finished products as well as a wide array of technological parts/products. It could take months for supply-lines in those areas to recover.
On the topic of recovering, some experts have suggested the need for reconstruction will be "good" for a Japanese economy that has struggled for much of the last decade. However, an informal panel of notable NACM and FCIB sources, while admitting growth technically will increase from low levels, rejected the notion that such an event will be a net-positive event, even from a strictly-business perspective.
"That is a stupid view, and it is completely missing the point that the stock of wealth will be undercut," said Adolfo Laurenti, deputy chief economist at Mesirow Financial. "Spending flows can distort our view of reality. There is very little upside with the flow of spending going out because of growth through reconstruction. I don't think that's good for the economy long-run because the losses of human and productive capital have been severe." Laurenti and NACM Economic Advisor and Armada Corporate Intelligence Managing Director Chris Kuehl also noted it is difficult to even try to estimate the impact both in human tragedy and economic damage of a worst-case scenario (massive nuclear meltdown) should it come to fruition. The future, both short- and long-term, essentially remains a giant grey area until the volatility in Japan hopefully stabilizes somewhat in the coming days.
"There are eternal optimists that assert that Japan will recover from this in a matter of months and, in a year or so, the most affected region will be largely back to normal; the more pessimistic assert that this disaster is of such magnitude that Japan will be reeling from its effects years from now. As in most things, the truth is likely to lie somewhere in between," said Kuehl, who is speaking at NACM's Credit Congress in Nashville in May.
Economist Ken Goldstein of the Conference Board praised Japan, noting that one thing on its side from an economic perspective is its higher likelihood to bounce back than most in the world.
"While this was bigger than the Kobe earthquake, this one didn't knock out as much production capacity. A much bigger story perhaps is how well Japan prepared after earlier disasters like Kobe and, back in the 1920s, Kanto, a quake that killed well over 100,000," Goldstein told NACM. "So far, this is nothing they nor the global community can't ultimately handle. This is Japan, not Haiti."
Brian Shappell, NACM staff writer
Words to the Wise
"Ultimately, it is not what we possess that makes us successfulâ€”it's what we become in our head and our heartâ€”how we go out and serve people."
- Tom Flick, 2011 Credit Congress Super Session Speaker
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Congress continues to look for an acceptable way to repeal an onerous 1099 reporting requirement on businesses. The new mandate would require all businesses to file an Internal Revenue Service (IRS) form 1099 for every vendor from whom they annually buy $600 worth of goods or services, beginning next year; however, if an amendment by Sen. Mike Johanns (R-NE) is approved, the requirement will never have a chance to go into effect.
Johanns attached the repeal amendment to S. 493, the SBIR and STTR Reauthorization Act of 2011, a popular bill that funds the Small Business Innovation Research (SBIR) and Small Business Technical Transfer (STTR) programs for eight years. The bill was most recently voted out of the Senate Committee on Small Business and Entrepreneurship by a wide bipartisan margin.
This most recent amendment would pay for the repeal using a method approved in the House version of a repeal bill, rather than the offset approved by the Senate in February. Under the House-passed repeal bill, and Johanns' amendment, the revenue lost by repealing the 1099 mandate would be offset by requiring taxpayers who receive federal health insurance subsidies to repay them if they end up earning more than 400% over the poverty line.
The provision differs from the original Senate pay-for measure, which would've paid for the 1099 repeal with rescinded funds instead.
Some Senate Democrats have opposed the House's approach for funding the repeal, viewing it as a swipe at the Affordable Care Act (ACA), also known as the health care reform bill and the party's signature legislative achievement. Republicans, however, have been quick to point out that the Democrats supported a nearly identical pay-for measure last year in order to prevent a cut to Medicare reimbursement rates for doctors. "At some point, continued opposition to the elimination of costly and onerous red tape for our job creators becomes not only perplexing but simply exasperating," said Johanns. "It rings hollow to claim this pay-for is unacceptable when a similar version was unanimously accepted last year to pay for doctor reimbursements."
Stay tuned to NACM's eNews and Credit Real-Time blog for future updates.
Jacob Barron, NACM staff writer
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After plenty of rhetoric and grandstanding, European Union (EU) member nations appear to have forged an agreement on strengthened bailout efforts to struggling nations including Greece as well as future provision to, in theory, keep them more on the same page. But not everyone is sold that the gesture was much more than symbolic or even a red herring to elicit a strong market reaction.
After a weekend of meetings, negotiations and, no doubt arguments, the EU decided on measures that include upping the lending capacity of the bailout effort as long as the nations who need to borrow more agree to deeper fiscal belt-tightening. Two top speakers at FCIB's April I.C.E. Conference in Chicagoâ€”Adolfo Laurenti, deputy chief economist at Mesirow Financial, and James Glassman, managing director and senior economist at JPMorgan Chase & Co.â€”agree that what has been announced should not have surprised markets as much as it did. They also agree that nations like Greece still need to do some very painful and unpopular reconstructing of spending to make any agreement work. However, the speakers/economists are sharply divided on some other points of the EU agreement.
Glassman, who raised eyebrows early this month by very publicly pointing out U.S. lawmakers' deep ignorance regarding their own financial markets, believes the agreement reaffirms the nations' strong commitment to maintaining the credibility of the euro.
"A lot of people are wondering if the European monetary system would fall apart; it was a mistake to ever assume this," Glassman told NACM. "The EU is benefitting a lot of people, and it remains an incomplete project. But it is in everyone's interest, from Germany to Greece, to be all together. Even though they don't have a strong mechanism for forcing fiscal conservatism, it's a lot easier than tearing it all up and walking away [from the euro system]."
Glassman also suggested the deficit issue itself is overplayed by the mainstream media. Rising deficits are part-and-parcel with a global recession and will ease greatly once the high-debt nations' economies get back on track, he suggested.
Laurenti, on the other hand, dismissed the reported agreement for the most part noting that EU leaders long have been known for forging agreements on broad principles that later unravel when it comes to working out the finer details/specifics. He characterizes the EU's issues as proof of a massive failure of leadership, not just on the part of high-debt PIIGS (Portugal, Ireland, Italy, Greece, Spain) nations, but also on financially stable ones (Germany, France).
"There is no leadership in Brussels; there are too many rivalries in place, and the fact that they take all this political posturing, even in their own interest, is fairly disappointing," said Laurenti, who also panned the EU's "structural weakness." "There is no doubt about it, there was a failure of the EU to put in place monitoring provisions to keep an eye on what those governments were doing. I can't believe the Germans would be so naÃ¯ve to believe they would not have been called to foot the bill in places like Greece, eventually."
Laurenti also asserted that focusing on the PIIGS may be disingenuous at times as the biggest strain will be on the French and German banks backing them.
"What they're really doing is bailing out their own banks," Laurenti told NACM. "The Germans are actually happy to prop up everyone because they export a lot to them [PIIGS nations]. Yes, it's true the Germans are lending money, but the Greeks are using that money to buy up German products."
For more information on the FCIB I.C.E. Conference appearances by Glassman and Laurenti, or to register, click here.
Brian Shappell, NACM staff writer
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The process of collecting a debt is often fraught with danger. There are endless potential outcomes, both positive and negative, that could affect the collector company's cash flow both now and in the future.
The goal of any collection attempt is to compel the customer to pay what they owe in a manner that is friendly, firm and professional and ends in a win-win scenario: the customer pays the debt and doesn't owe the creditor anymore, and the creditor gets paid while maintaining the quality of their relationship with the debtor.
Arriving at this win-win scenario requires some very important skills, all of which will be discussed during "How to Collect the Debt and Keep the Customer," an upcoming NACM teleconference presented by Dorothy Morris Marshall, CCE, CICP on March 21 at 3:00pm EST. Marshall will take attendees through the basic tools required to identify high-risk accounts and potential problems, all while ensuring that these issues are solved in ethical and successful ways. She'll also give listeners some practical methods that they can use to frame normally negative things in a positive way to their debtor, while aligning themselves with their customers.
To learn more about this presentation, or to register, click here.
Sometimes, collection efforts won't work simply because the debtor can't afford to pay anyone, in which case they could file for Chapter 11 protection under the Bankruptcy Code. Creditors looking for a step-by-step process that tells them what to do when their customer files, should tune in to the Mark Berman, Esq. aptly-titled NACM teleconference, "What to Do When Your Customer Files Chapter 11," on March 23 at 3:00pm EST.
Berman's presentation will give attendees a wealth of information that they can return to whenever they face a customer's Chapter 11 filing. With more than 30 years of legal experience, Berman will offer his expert tips on stopping goods in transit, becoming a critical vendor, selling to a Chapter 11 debtor and every aspect in between.
"This program is directed to the credit manager and will help identify action items for the credit manager should a customer file a bankruptcy," said Berman, noting that now is always the time to learn about the Chapter 11 process. "Several of the action items have strict deadlines and, therefore, the filing of a customer bankruptcy is not a time to learn on the job."
To learn more, or to register, click here.
Jacob Barron, NACM staff writer
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MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.
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For more information on NACM's MLBS, click here.
Though quickly knocked out of the "top stories" areas of the Internet and off the front pages of news publications as a result of the ongoing earthquake/tsunami/nuclear-induced crises in Japan, an official at one of the "Big Three" ratings agencies went out on a big limb last week in predicting that a banking crisis in China is likely by 2013.
Not to be outdone by Moody's big ratings downgrades of Greece and Spain just days before, a senior director from Fitch Ratings dropped a proverbial bomb about the Chinese growth bubble blowing up within the next couple of years. Fitch's Richard Fox reportedly told Bloomberg that he believes China, which continues to demonstrate unprecedented growth across several sectors, carries about a 60% probability for a significant financial crisis within a couple of years.
Growth there has been tracking at levels near an astonishing 20% in recent years. The reasons for the prediction are similar to those that helped caused massive downturns in the United States, Ireland and Spain, among other nations: bad or high-risk loans and drastically overheating real estate values.
However, The Conference Board Economist Ken Goldstein told NACM there isn't reason to put too much credence in the prediction. Goldstein, interviewed before news of the radiation leaks at Japan's nuclear plants became public, suggested China's most important issues in the short term include quieting international concerns over currency values and the trade surplus and, in the long term, that the replacements in governing for "geriatric party leaders" may not be as competent as those who've been in power for some time.
"A good deal of debt that state-run banks hold is owed by state-owned enterprise," said Goldstein. "So, while China has things to worry about, an imminent debt-induced banking crisis really isn't one of them."
Brian Shappell, NACM staff writer
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The Small Business Administration (SBA) opened a comment period this week seeking information from the public on the agency's existing regulations.
The SBA attempt to find out whether businesses believe their regulations should be streamlined, expanded or withdrawn has been spurred on by Sen. Olympia Snowe (R-ME), ranking member of the Senate Committee on Small Business and Entrepreneurship. Snowe, along with Sen. Tom Coburn (R-OK), recently introduced a bill called the Snowe-Coburn Small Business Regulatory Freedom Act that would require all government agencies to calculate the direct and indirect economic impact of federal regulations and allow more flexible review periods.
"Excessive regulations are suffocating the entrepreneurial spirit of America's almost 30 million small businesses and, regrettably, small firms with fewer than 20 employees bear a disproportionate burden of complying with these rules," said Snowe. "To spur job creation and economic growth, it is incumbent upon every level of government to simultaneously pursue sound incentives and eliminate the laws and policies already on the books that are proven impediments to these objectives."
"I am encouraged by SBA's initiative and urge every person who interacts with SBA to provide input. I also call on my colleagues to move quickly to pass the Small Business Regulatory Freedom Act," she added. "This will ensure all federal agencies focus on pro-growth policies that cultivate an economic climate ripe for job creation and innovation."
Key provisions of the bill would allow smaller entities to challenge regulations in court, require periodic review and sunsets on existing rules, and mandate small business review panels for all federal agencies.
Comments for the SBA are being accepted until April 13. They can be submitted electronically at the Federal eRulemaking Portal at www.regulations.gov, or mailed to the SBA, Office of the General Counsel at 409 Third Street, SW, Washington, DC 20416.
Jacob Barron, NACM staff writer
Putting aside concerns over geopolitical unrest in the Middle East, related oil price spikes and, of course, the deteriorating situation in the Far East, the Federal Reserve opted to make no changes in direction at Tuesday's monetary policy meeting. However, its Federal Open Market Committee (FOMC) for the first time seemed to soften its assurances, albeit ever so slightly, that inflationary pressures were not of concern.
FOMC's latest statement suggested its board members, who unanimously voted to maintain rates at a level between 0% and 0.25% for the second consecutive meeting, believe the economic recovery has reached "firmer footing." The committee cited reasons such as gradual improvements in the labor market as well as increases in household and business capital expenditures for its perceived confidence for the rate hold, as well as a continued commitment to purchasing Treasury securities up to its originally pledged total of $600 billion through the 2Q2011.
The FOMC initially brushed aside admittedly higher commodity prices and the concern that higher oil prices would hurt businesses still trying to recover, lobbing words such as "stable" and "subdued" to describe longer-term inflationary expectations. However, later in its statement, the Fed appeared to admit the price increases were showing signs of future, if not present, inflation. And, in what could be called a minutia-driven red herring, the Fed's robotic language from recent months calling inflationary pressure "low" was instead referred to in the statement as "somewhat low":
"The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability."
Brian Shappell, NACM staff writer
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