Economic Outlook: What's going right?

By ANTHONY HALL, United Press International  |  Dec. 19, 2012 at 7:16 AM
share with facebook
share with twitter

Something must have gone right in Greece for a change.

Credit rating service Standard & Poor's said Tuesday that it would raise Greece's credit grade from selective default to B-minus, a six-notch improvement. That's a rare bit of good news for the eurozone and for Greece, which has been in a recession for six years.

What went right is that Greece has tightened its budgetary belt repeatedly at the behest of the European Union. In return, finance leaders recently allowed Greece its next loan disbursement of $65 billion.

In addition, Greece which was thrown into selective default by initiating its bond buyback program, has just completed that step.

European leaders have rallied around the Greek cause, albeit reluctantly. S&P cited the "determination" of eurozone countries to keep Greece as a member in good standing.

In response to the upgrade, yields for Spanish and Italian benchmark bonds dropped, The Wall Street Journal reported.

News from Washington Tuesday can be taken two ways, apparently.

The news in question is House Speaker John Boehner's revealing he has been working on a backup plan in case budget talks with the White House fail to produce a compromise that would avert the so-called "fiscal cliff."

The "fiscal cliff" is the popular term for mandated spending cuts and tax hikes put into place in the summer of 2011. Economists fear the sudden budget shift, $500 billion in spending cuts, would throw the U.S. economy back into a recession.

Every whisper that talks between Boehner and President Obama are going well is translated into positive news on Wall Street. Similarly, every time an aide rolls his or her eyes or breaks into a sweat, stocks go down.

How did investors react to finding out there was a "Plan B," which really should have been dubbed a spare budget, to be used like a spare tire if budget talks blew out?

If market numbers are a reflection of our times, the back up plan sounded sensible, as gains on Wall Street held up Tuesday.

That was after an initial jolt, however. Just knowing there was a backup plan was a bit like realizing an ocean liner has lifeboats. Regardless of the practicality, it makes anyone on board stop and think -- uh, oh, these things might be needed.

Then again, the response among Republicans on Capitol Hill was not exactly warm and fuzzy. The backup plan is not a gimme.

"Plan B" calls for raising taxes on incomes exceeding $1 million. It also calls for $500 billion in defense spending cuts over 10 years, The New York Times reported.

That gave the chairman of the House Armed Services Committee, Rep. Howard McKeon, R-Calif., pause. And if a committee chairman pales it is likely that there are underlings lined up behind him or her with similar concerns.

While some complained about the impact of cuts on military readiness, Sen. Rob Portman, R-Ohio added that the cuts would be so deep they would also have a negative effect on the economy.

And then there's the time factor.

The Times said Republicans could put various proposals up for a vote by Thursday, including one that allows the George Bush-era tax cuts to end for everyone making less than $250,000 a year. The idea, however, would be to demonstrate that such a plan would never get enough votes to pass.

In the middle is a plan from President Obama that would have the line set at $400,000. And then there's Boehner's plan, setting the tax increase for those making $1 million or more.

Spending cuts already in place total more than $1 trillion over 10 years and Republicans could decide to just let those ride. Additional spending cuts would be on the agenda in January or February, when the issue of raising the debt ceiling re-emerges.

It was the debt-ceiling issue in 2011 that Republicans used to force a debate on debt reduction. They might use a similar stonewalling tactic in 2013, the Times said.

In international markets the Nikkei 225 index in Japan gained 2.39 percent while the Shanghai composite index in China lost 0.01 percent. The Hang Seng index in Hong Kong rose 0.57 percent while the Sensex in India gained 0.57 percent.

The S&P/ASX 200 in Australia added 0.49 percent.

In midday trading in Europe, the FTSE 100 index in Britain climbed 0.64 percent while the DAX 30 in Germany rose 0.26 percent. The CAC 40 in France gained 0.5 percent while the Stoxx Europe 600 gained 0.54 percent.

Related UPI Stories
Trending Stories