Home Prices, Consumer Confidence Continue to Slide in Improving Economy

Consumer confidence continues to plummets as do housing prices in the United States, according to two studies unveiled this week. Does that mean the Federal Reserve’s repeated assertion of late that the economy continues to improve is false? That’s not necessarily the case.

The latest Consumer Confidence Index for March, tracked by The Conference Board, declined dramatically to a level of 63.4 from February’s reading of 72.0. A corresponding, forward-looking “Expectations Index” experienced an even bigger slide, from a level of 97.5 to March’s 81.1.

Granted, that was just hours before Standard & Poor’s/Case-Shiller Home Price Indices were released. Median home prices fell by a total of 1% among a grouping of the nation’s 20 largest housing markets. Moreover, 19 of the 20 markets (excluding Washington, DC) experienced losses between December and January,

Still, the Fed and numerous experts are sticking to their proclamations that a continued, albeit muted or mild, economic recovery period is still on. In fact, Economist Ken Goldstein, also with The Conference Board, told NACM the Fed indeed “is on target.”

“Consumers are less worried about how high the cost of filling up the gas tank or grocery cart has gotten; They are worried about how much more it will go up,” said Goldstein. “The second half of that worry is the very real fear that wage gains won’t match it. So the household budget is getting squeezed again. BUT, energy (utilities and gas) costs account for only about 5% of the household budget and food is perhaps twice that. In other words, the tail is wagging the dog here. These are more ‘nuisance taxes’ than a real hindrance for consumers.”

(Note: For the full version of this story including more analysis, check out our March 31 edition of eNews, available at nacm.org on Thursday afternoon).

Brian Shappell, NACM staff writer

CICP Road Diary: Entry #3 A Word on Workload

Now that I’m more than half-way through the CICP course, it’s as good a time as any to describe the course’s workload.

I mean, that’s probably why a lot of you are reading this, and while I’d love to be amazingly insightful and break things down for you here on a mind-blowingly practical, real world level, the truth is that the course time estimate is already available on FCIB’s website, and, perhaps more importantly, the estimate is among the most accurate things ever stated on the internet

That might sound like hyperbole, but seriously, the estimate given is 5-7 hours per week, and that’s almost exactly how much time I’ve spent on each module. From every angle, with almost every mitigating factor included, that’s how long it will take you each week to stay on track.

I came into the course, as I noted in my introduction, about 5 years removed from college. I had to relearn how to be a student, sure, but I figured that I could still get back into the swing of things quickly and make short work of the material. And the fact of the matter is that I did get back in the swing of things. I’m working almost as well as I did back in senior year, when I was a seasoned collegiate professional…and it still takes me 5 to 7 hours.  Needless to say, the estimate was obviously made by someone who’s taken the CICP course before, apparently while someone timed them with a stopwatch.

Modules do vary in size and length, but still, 5 hours is probably the minimum time requirement, unless you blow through everything without looking at it, which I think everyone would recommend against. Module 1 is among the shortest, so you’ll go through it fairly fast, and then since there’s no post-Module test, you’ll feel like you just took the first step on the road to the easiest credentials of your life.

Then the rest of the Modules arrive, post-tests and all, and you realize that you were sorely mistaken.

Again, it’s not overwhelming, I wouldn’t say, but don’t think that just because the first Module is short and exam-less, that the rest of them will be the same. I may have made that mistake, so don’t do like I did.

Another mistake I made, is that I didn’t take a look at the index ahead of time. Oh the index, how helpful art thou; this is the part of the course that lays out all of the Modules and all of the lessons (the differences of which can be found here) in an easy to read outline, and I visit it all the time. It’s my yard stick, and my guide, and if I can give one piece of advice, it’s to look at this at the very beginning, and be prepared for the longer Modules. There are a few, and I’d imagine that knowing they’re there is better than ambling through the course blindfolded like I did (for the first half, at least).

The mitigating factor here is that, as I also said in my introduction, I am not a credit manager. I’ve had to spend a little extra time looking up terms that many of you probably rely on every day, or at least know the meaning of.  While I’m spending time hunting for a good example usage of the word “obligor,” you could be clicking your way on to the next section, so that’s an important factor to remember here.

Nonetheless, that 5-7 hour weekly estimate is spot on, and should be held as both an expectation of what you’ll have to do, and a good goal for how long to immerse yourself in the material, once you’re in the course. You could probably speed through the modules in less than 5 hours, but you’d probably be missing out on a lot of valuable dialogue, added practical knowledge and the little specifics that make this whole thing a lot more worthwhile.

Till next time,


Federal Exporting Agency Ups Ante in Brazil




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In a move designed to increase opportunities for U.S.-based exporters, Ex-Im Bank of the United States is investing in a series of infrastructure projects in new economic hotbed Brazil. 

Ex-Im, the nation’s official export credit agency, authorized $1 billion this week to help grease the wheels, so to speak, for exporting of goods and service to be used in a serious of infrastructure projects around Rio de Janiero. Among them, will be stadiums and other venues related to Brazil’s sought-after status as host to both the FIFA World Cup (soccer) and the Olympics within the next decade. The $1 billion in financing will be available for the state of Rio de Janiero to borrow to finance purchasing supplies from U.S.-based companies to complete the work.

“Brazil is an emerging economy with extensive infrastructure needs, and this authorization will provide further opportunities for American exporters and small business owners…it is important that we encourage our businesses to compete globally,” said Ex-Im Chairman/President Fed Hochberg.

Note: In-depth sessions focused on doing business in Brazil will be featured both at NACM’s 2011 Credit Congress in Nashville in May and FCIB’s 2011 I.C.E. Conference in Chicago in April. Click the highlighted links for information on each event or to register. See more on Brazil in the upcoming edition of NACM eNews, available on the afternoon of March 31.

Brian Shappell, NACM staff writer

Business Friendly Social Media Platform Hits 100,000





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LinkedIn, widely regarded as the most business-appropriate social media platform, reached 100 million users, CEO Jeff Weiner claimed on March 22. It’s worth noting that executives from every member company in the Fortune 500 presently operate a LinkedIn account. Additionally, the annual growth rate for the platform in Brazil and India, two of the nations demonstrating the strongest economic growth and potential, was 428% and 76% at last check, according to LinkedIn officials.

Fellows Inc. Corporate Credit Manager Curt Rothlisberger, CCE, CICE, told NACM he believes LinkedIn has been helpful in building better collaborative business relationships, especially with global colleagues, as well as finding or considering potential staff.

“When contemplating a hire, for example, I expect to see a presentable profile of a candidate on LinkedIn,” said Rothlisberger, a panelist at FCIB’s I.C.E. Conference in Chicago next month. “If not, it’s a red flag to me perhaps indicating the person is not ‘with the times.’ It also helps confirm one’s background when comparing with a resume.”

(Note: For extended version of this story check out the upcoming edition of eNews, available every Thursday afternoon by clicking here).

Brian Shappell, NACM staff writer

PIIGS' Ratings Hits Keep on Coming With New Spanish Downgrade

Following Monday's triple-downgrade of Greece's credit rating and perhaps more significantly, fellow-high-debt Spain also felt the sting of a downgrade by Thursday as part of the ratings agencies' ongoing skepticism of the so-called "PIIGS" nations (Portugal, Ireland, Italy, Greece, Spain).
Moody's Investment Services issued another downgrade, this one by just one notch, to Spain's rating, and followed it up with a warning that more would come if the nation reeling from banking and real estate collapses missed more financial targets. Spain's rating with Moody's now sits at "Aa2," with a negative outlook.

The Spain downgrade was explained as follows:
1.) Moody's expectation that the eventual cost of bank restructuring will exceed the government's current assumptions, leading to a further increase in the public debt ratio.
2.) Moody's continued concerns over the ability of the Spanish government to achieve the required sustainable and structural improvement in general government finances, given the limits of central government control over the regional governments' finances as well as the background of only moderate economic growth in the short to medium term.

"Throughout the evolution of the economic crisis in Europe, the nation that has loomed as the linchpin to all of this has been Spain; The crisis in Greece and in Ireland can be managed to some degree although even these states have placed an immense strain on the euro zone," said Chris Kuehl, NACM's economic advisor and director of Armada Corporate Intelligence. "The Spanish situation has always been far more serious due to the size and influence of the nation in Europe as a whole...and the crisis in Spain has added to the overall nervousness in the market as a whole. It has been a rough few weeks for bond investors, and that does not bode all that well for the efforts in Europe as a whole.

Greek and Spanish officials, who have regularly bashed the ratings agencies for their own poor track record of ratings in the run-up to the global economic downturn as well as what it perceives as obvious conflicts of interests in their decision-making, again responded to Moody's with vitriol. They've characterized the latest downgrade with words such as "incomprehensible" and "hasty," respectively, much like they did following downgrades that preceded talk of bailout packages, one of which going to Greece, rife with unpopular austerity demands in 2010.

"The ratings agencies are not too popular these days," said Kuehl, who will be speaking during two education sessions at NACM's 2011 Credit Congress in Nashville. "During the boom years they seemed to lose their ability to remain objective and consistently rated companies, banks and countries higher than now seems justified. These days, there seems to be a new attitude that reinforces strict interpretation. The ratings now are deemed too harsh by some."
For more information Kuehl's appearances and others at NACM's 2011 Credit Congress, visit http://creditcongress.nacm.org/.

Brian Shappell, NACM staff writer

Is China's bubble about to burst? One Ratings Agency Thinks So

Though knocked out of the most-read areas off the internet and off the front-pages of news publications quickly as a result of the ongoing earthquake/tsunami-induced crisis in Japan, an official at one of the "Big Three" ratings agencies this week went out on a big limb in predicting that a banking crisis is China was likely by 2013.
No to be outdone by Moody's big ratings downgrades of Greece and Spain early in the week, a senior director from Fitch Ratings dropped a proverbial bomb about the Chinese growth bubble blowing up with 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. Among 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/risky 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. He suggested China's more 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

Euro Zone Deal Draws Mixed Reviews from I.C.E. Speakers





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After plenty of rhetoric and grandstanding, European Union (EU) member nations appear to have forged an agreement on 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 and a red herring to elicit a strong market reaction.

After a weekend of meetings, negotiations and, no doubt arguments, the EU decided on a measures that including 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 the April's FCIB I.C.E. Conference in Chicago;   Adolfo L. Laurenti, deputy chief economist at Mesirow Financial, and James Glassman, managing director and senior economist at JP Morgan Chase & Co.; 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 major, 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. Congressional lawmakers' deep ignorance regarding its own financial markets, believes the agreement reaffirms the nations' strong commitment to maintaining the credibility of the euro. Laurenti, on the other hand, dismisses 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.

For the full, hard-hitting point-counterpoint story, check NACM's eNews feature, available NOW on our website, nacm.org.

Brian Shappell, NACM Staff Writer

Credit Congress '11 St. Patrick's Day Special

NACM wants to wish you all a happy and festive (but not too festive) St. Patrick's Day. As such, we're having a Credit Congress sale. NACM is offering offering $77 off the current full delegate registration rate, valid on Thursday, March 17 only. If you want to take advantage of this one-day offer, please use coupon code LUCKYCC.

For more information on NACM's 2011 Credit Congress, happing May 22-25 in "The Music City"/Nashville, TN and/or to register, visit http://creditcongress.nacm.org/.

CICP Road Diary: Entry #2

"Neutral, relative and necessary."

If you read those three words out loud, dramatically and in a deep voice, they could almost sound like the tagline to a new political thriller or legal drama, possibly one that takes place in Switzerland, or during an especially captivating arbitration proceeding. I don't think such a film exists, but rest assured that if it gets made in the next few years, I'll be suing whoever made it.

In any case, those three words are culled directly from a lesson in the CICP course. At the beginning and end of every module, and sometimes at the beginning or end of a lesson (modules are the big chapters, and they're divided into lessons), the instructor offers some valuable, broader, more philosophical tips and summaries, and this one caught my eye. The thing that the course says is neutral, relative and necessary is risk. Whether it's political, financial, documentary, or interest rate-, acceptance- or foreign exchange-related, risk is a neutral, relative necessity in the world of commercial credit.

Now, this may be something that all credit professionals keep in mind at all times, but it still struck me as a remarkably powerful assessment of what risk is. I've written article after article about how to mitigate risk and reduce it, treating risk like it's a bad thing; the enemy of commercial credit extension, both domestic and international.

This is hardly the case though, and while I still stand behind those articles I wrote and believe risk mitigation is something that creditors do on a daily basis, it's important to remember that risk just...is. It's not an enemy or a friend, nor is it something to be combated or cultivated, it just...is. I'd imagine that recognizing this fact, that risk is something a credit department lives with, but can't do without, is one of the first steps toward becoming a great risk manager, and looking at it this way certainly affected the way I viewed the credit function as a whole. Credit departments and credit professionals aren't meant to eliminate risk, they're meant to make it manageable, and profitable, to be comfortable with something that's, by definition, kind of uncomfortable.

The idea that risk is "neutral, relative and necessary" speaks to credit's role not just as a financial buffer, but as a revenue generator. Another line I wrote down from the course, not from the same lesson, I don't think, is that credit should be viewed as "an investment in receivables." An extension of credit isn't just giving someone something for free and then hoping they pay back, it's an investment in the company and the company's future. I've probably written as many articles on risk mitigation as I have on credit's reputation as "sales prevention," which is something the CICP course recognizes and addresses with thoughts like this. Risk as a necessary constant, and credit is an investment.

Just something that struck me I guess. Back to work now. For those of you keeping track, I'm almost caught up, and should be 100% before week's end.

Till next time,


CICP Road Diary: Entry #1

It's been just short of two weeks since my last entry here, and let me freely admit that although I've spent much of that time catching up on my CICP modules, I still remain a tad behind on the program.
In addition to offering a layman's perspective into the nuts and bolts of the CICP program and what it requires of its pupils, this series will also, in all likelihood, give you a glimpse into the production schedule of Business Credit magazine since, when I'm not working through my CICP modules and learning to calculate ratios for the first time in who knows how long, I'll be working on articles for that publication, or for eNews, or working on advocacy initiatives as they come up.

Currently, I've been at work on a feature article for the April 2011 issue, one that has occupied much of my time and will focus on customer relationships between sellers and buyers in countries facing political turmoil. I got the idea from watching the ongoing revolts and uprisings in Libya and Bahrain and the revolutions in Egypt, Tunisia and elsewhere in the region. While time spent researching and interviewing isn't exactly time spent going through the class, in a way, even as I worked through the CICP modules, I felt like I was helping my article, since certain class topics (especially those on the Foreign Corrupt Practices Act (FCPA)) seemed to speak directly to what I was writing about.

Also, in the process of writing the article, I've spoken to other credit professionals, ones with business ties to the Middle East and North Africa, and it's remarkable how similar the things they've said are to the things the CICP course says. It's never been clearer to me that the class was created by people who manage risk, and have managed risk, successfully, everyday, in some of the least hospitable places on the planet. Each has reinforced the other for me; the quotes I've gotten from credit professionals seem stronger when they're nearly identical to things included in the course, and the things in the course seem more applicable when they're echoed by other credit professionals.
In any case, we've reached the break week that comes in the middle of every CICP course, which will allow students like myself to catch up and poke through the discussion boards to see what everyone's been talking about. I've been doing that on and off since I began the course, but I've mainly been focusing on getting through the modules, and getting up to speed. I'm looking forward to seeing all the good conversations I've missed, and hoping not to miss any in the second half of the course, which officially begins next week.

I know I've said a lot about how behind I am, and how my other professional obligations have gotten in the way, but I hope that doesn't fool you into thinking that this is too much for a professional to handle. Firstly, if I may make a suggestion, don't start the CICP program when you're on vacation in Mexico. I can't stress that enough. I know it's lovely down there, but try not to.
However, if you do that, like I did, and end up behind your classmates, the most important thing is not to let that convince you that the course can't be completed. The CICP program seems to have been designed with the knowledge that it's inevitable that some people will fall behind, whether due to a sudden influx of increased work responsibilities or ill-timed vacations or anything else you can think of. Things can seem a little daunting, sure, and it's hard work, but as long as you make the time to go through it, and work out an efficient studying procedure, it'll all work out. I'm going to complete it. I'm sure of it, and I'm sure you can complete it too.
Till next time,

CICP Road Diary: An Introduction

My name is Jacob Barron, and I am not a credit manager.

I'm a writer and government affairs liaison here with NACM-FCIB in the national office, and have been since 2006. Near the end of last year, after some discussion with colleagues and friends, I decided to enroll in FCIB's online CICP course, also known as International Credit and Risk Management. At the end of the course, in April, provided I complete it successfully, I'll be able to sit for the CICP (Certified International Credit Professional) exam and, if I pass, attach those letters to my name, business card, email signature, and anywhere else I see fit to attach them.

You could do the same, if you take the course that is, and to give you an idea of what that's like from a practical standpoint, I'll be posting my own ruminations on the class, its material and its demands here in the form of a diary. I won't be starting the entries with "Dear Diary" or anything, but the idea's the same. I'm calling it my CICP Road Diary, and I'm hoping to provide updates on a weekly basis from here on in.

Think of this as a travel guide, written by someone who has only researched and heard about the journey in question, but never really made the trek himself. This is to say that, sure, I've had plenty of experience delving into the process of commercial credit management, both on an international and domestic basis. I've read countless case studies of relevant bankruptcy proceedings and spoken to untold dozens of credit and risk management practitioners about the issues they face in the global economy, in their companies, in their departments and in their quests to better themselves for the sake of their careers.

But as I said at the beginning, I'm not a credit manager, and while I won't get a "credit manager" badge when I'm done, what I will get is weeks of experience talking with other credit managers from around the world. I'll get a deeper understanding of the skills necessary to succeed in an increasingly globalized economy, and a thorough knowledge of the strategies, challenges and conflicts that can crop up in any international business venture. I'll also hopefully get some new friends and contacts, to whom I can turn whenever a question comes up that I can't answer.

What you'll get from the course, if you decide to take it, really depends on how you treat it, I suppose. But what you'll get from me, here, is at least a peek into the process of going through the modules, taking the tests and engaging my classmates in the discussions. Ideally, this road diary helps me organize my thoughts as much as it helps you understand the challenges and the rewards that go along with the CICP course, and hopefully it all entertains you along the way too.

The course began about a month ago, while I was on vacation, so, in the interest of full disclosure I'll admit that I'm still playing catch-up. The hardest part so far has been re-learning how to be a student again. I've only been out of college for five years now, but all of my old studying strategies don't seem to work as well as they did in college, when all I was expected to do was schoolwork, and maybe write an article or two for the school newspaper. Now I have a job, and a class to take care of, so I've had to find new, more efficient ways of learning and studying that better suit the situation.
I think I've gotten the hang of it, but, overall, it's been an interesting, enlightening month, and I'm eager to see what's next. So, with that said...

Till next time,

With Rebound on ‘Firmer Footing,’ Fed Stays Course on Rates, Securities Purchases

"Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. 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.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4% and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen."

Source: Federal Reserve

Fed Beige Book: Economic Expansion Continues (Includes Regional Breakdowns)

As Federal Reserve Chairman Ben Bernanke carried a message of cautious optimism to Congress on Wednesday on strong manufacturing gains, exporting activity and rising business confidence; the Beige Book economic conditions roundup of the 12 Fed districts told a similar tale.

The March-released Fed Beige Book, summarizing district-by-district economic conditions eight times annually, noted retail sales and manufacturing increases in all districts, except for St. Louis, even as crippling snowstorms blanketed much of the nation during portions of February. The Cleveland, Atlanta, Minneapolis and Kansas City district noted especially "sold expansion" for manufacturing. However, Chicago noted that its rise was more moderate than in past periods.

Meanwhile, about half the districts reported the long-wounded commercial real estate sector "showing signs of gaining traction." Commercial loan demand also was mixed, though financial institutions reported widespread improvements in all other loan segments. Credit standards, however, continued to be tight even as credit quality has improved, the Beige Book indicated.

Agriculture, in the areas of crop yields and production, may have suffered the worst because of the cold and snowy weather conditions. There were, however, some exceptions in areas like in the strong-performing St. Louis district. Additionally, high prices of Ag commodities such as cotton, corn, soybean and wheat, among others, continued to hold firm or improve.

First District - Boston
Manufacturing contacts appeared to start 2011 in celebratory fashion as sales and outlooks demonstrate continued strength. One auto components manufacturer called 2010 his best year to date. Semi-conductor and pharmaceutical industry contacts also did particularly well, the Fed noted. Commercial real estate fundamentals are stable in many areas (Hartford, Boston) or improving. Retail sales remained positive though inventories remain tight.

Second District - New York
Sectors like those in automotive sales reported better ordering and inventory activity. Upstate New Yorkers saw 10% to 20% increases compared to January 2010, for example. Commercial real estate continued to struggle with high office vacancy levels, but stability is creeping in. Even the much-maligned condominium market appears to have steadied, the Fed said. Business lending standards tightened even as commercial delinquency rates continued to show improvement.

Third District - Philadelphia
Strong shipping and new order increases were realized in the district between January and February. Eleven of the largest manufacturing sub-sectors all had positive things to say about demand, the Fed noted. Contacts pontificated that exporting was behind the high demand and will continue to drive it in 2011. Business loan volume reportedly increased slightly though companies largely "are not looking to borrow." Commercial real estate activity hasn't much changed. One contact predicted it will take some office markets "several years to recover the loss of occupancy caused by the recession."

Fourth District - Cleveland
New orders and production were generally up though there were a few expected seasonal declines. Manufacturers expect moderate growth throughout 2011, with particular strength in the energy-related, auto and heavy equipment industries. The district is among those still reporting weaker commercial real estate activity. Commercial lending requests held stable, edging toward slight growth since late 2010. Credit quality of businesses was seen as "stable to improving," said Fed contacts.

Fifth District - Richmond
Manufacturing continues to perform well in the region, though there is concern with raw materials prices because of extreme demand in nations like China and India. Most business loans are coming from larger area businesses in the process or mergers/acquisitions. It appears business confidence is improving, according to Fed contacts' reports; so expect an uptick in lending in the near-term. Commercial real estate saw "broad-based, but moderate improvement. Though vacancy rates remain high, pricing and leasing rates have stabilized for the most part. Agriculture contacts rued cold temperatures that limited crop development and profits alike.

Sixth District - Atlanta
Growth is the name of the game in manufacturing, but more so in new orders than production levels. Shipping experienced particularly high demand though that area faced weather problems in January and could face fuel cost issues in the coming Fed tracking period. Credit conditions are a mixed bag in the district: improving for those outside of commercial real estate, and worsening for those in it. Cold temperatures and drought conditions have hit Ag businesses in the district, particularly Florida, hard. The spot of optimism comes in global demand elevating prices of commodities such as cotton and soybeans.

Seventh District - Chicago
While manufacturing continued to expand, Fed contacts quipped that they were surprised that the gains were more moderate than in previous months. The worry might be unfounded though, as new orders and backlogs continued to rise at strong levels. Steel, automotive and heavy equipment continue to lead the pack in the sector. Rental vacancy rates stabilized, though pressure on pricing remained. Businesses, especially in agriculture and energy, again appeared more free to spend and invest here than in other districts. Credit availability and use of lines showed improvement.

Eighth District - St. Louis
Dubiously, the district was the only one to show a decrease in manufacturing activity, with many plants planning to close up shop or reduce operations (employment) soon. This includes the wood products, auto, aircraft and primary metal industries. Commercial property demand remained anemic. Like District Six, credit availability depended on the industry, with commercial real estate drawing the short straw, so to speak. Agriculture saw total production on the rise, though there were certainly yield winners (cotton) and losers (corn, soybeans).

Ninth District - Minneapolis
Manufacturing increased, notably in the less populated markets. One of the areas with reports of production weakness was Minneapolis. Still, certain industries there (metal fabricators, semiconductor chip producers) continue to expect significant production gains in 2011. Commercial construction permits rose noticeably, giving hope to those in the industry despite flat vacancy rates. Agriculture conditions improved on the strength of commodities prices. Recent Department of Agriculture rulings on using certain genetically modified products proved helpful to some.

Tenth District - Kansas City
Though slowing was noted in the high-tech and transportation sectors, overall manufacturing grew. Concern did grow over input, raw materials costs though. Commercial real estate has stabilized; but credit conditions for the sector still were considered "constrained" and worsening. Credit conditions were stable for other industries, said Fed contacts. Weather and supply issues hurt crops badly, but lifted prices considerably for those whose yields survived the double-whammy.

Eleventh District - Dallas
Manufacturing's growth in the district depended on the industry: growth in orders for high-tech, petrochemical, food and aviations products but less so for those in the construction game. Agriculture had a virtual horror show on its hands as "exceptionally dry conditions along with extended periods of below-freezing temperatures adversely affected the vegetable crop in Texas [and] greatly stressed livestock..." Commercial and industrial loan activity was mixed, though credit quality improved in many cases.

Twelfth District - San Francisco
The manufacturing rebound continued with strength in areas including technology, semiconductor, commercial aircraft and petroleum refinery production. Commercial real estate was generally weak, but vacancy levels have stopped rising for now. This is tied to a recent increase in commercial rental space demand. Unlike most districts, District 12 did not experience much extreme weather, so most crop production was solid, and "robust" demand continued.

Brian Shappell, NACM staff writer, can be reached at brians@nacm.org

Sales Numbers Hit a High in Latest Credit Managers' Index

This month's Credit Managers' Index (CMI) from the National Association of Credit Management (NACM) reveals a tale of two economies and two strategies. There is continued good news in the index with sales and credit availability, but there is some very bad news as far as the toll this economy has had on business thus far. An impressive growth in sales pushed the number well into the 60s with a reading of 66.3-the highest since the recession started in 2008. Credit applications experienced the same growth, rising to 60.3 after having slipped to 58.6 in January. This number is also the highest since 2008, suggesting that companies still expect growth and are taking steps to get ready. The good news continued with dollars collected, which improved from 60.9 to 63.4. And, finally, there was good progress in the level of credit extended-an increase from 64.8 to 66.5.

The sum total of all this positive trending is an improvement from 62 to 64.1 in the favorable factor index. "What then is the problem?" asked Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and NACM economic advisor. "Why is overall growth in the CMI non-existent? The 56.4 reading this month is the same as last month despite the good numbers."

This is the vexing part of a transition economy, said Kuehl. This is the time that companies move aggressively to capture market share due to the sense that the consumer is starting to engage-an assumption reinforced by overall economic numbers. The retail sector finished 2010 stronger than expected and the last set of data from the Purchasing Managers Index (PMI) show substantial gains in both the manufacturing and service sectors. Consumer confidence is up as well. These are the signs everyone has been waiting for, but they are not the signs of a fully recovered economy.

This situation creates the same pattern every time. The strongest competitor in a given market, the market leader, starts responding to anticipated demand with more capital investment, some hiring and additional marketing. That provokes the market challengers in that sector to respond in kind to maintain their edge. Right behind them are the market followers that also have to react to the moves of those in the dominant position. It is a chain reaction driven by the need to hang on to market share-a race that some companies are better positioned to enter. They are the ones that can wait for the recovery. Those that are not sitting on enough cash have no choice but to make investments and hope that the timing is right.

One of two things will happen to these companies. If the timing is right, the investment will pay off. The anticipated demand will manifest itself, and the cash flow will be there to handle the investment and credit requests. If the timing is off or if the company is forced to respond to the competition sooner than preferred, the debt soon becomes brutal and business failures ramp up. This is the signal sent by this month's index. The two negative factors showing the biggest increase were bankruptcies (falling from 59.1 to 56) and accounts placed for collection (moving from 52.5 to 49.9). Other indicators deteriorated as well. In the end, the declines in the unfavorable factors dragged down the combined index and left the CMI flat for the month.

This part of the transition out of a recession can be the most brutal. Companies barely hanging on could survive if there is little additional pressure. Now with the competition starting to heat up, these struggling companies are left with poor options. They either just accept the loss of their market or they gamble on their ability to hang on. If they guess wrong, they get into trouble soon. It is now a matter of how patient creditors can be and the point where credit managers must really show their skill at reading businesses. If they restrict an account to reduce exposure, they strain the relationship and may lose that customer should it rebound. If they give too much and the company goes under anyway, they have lost a lot of money and could put their own company in some peril.

Is Growth Tapering Off?

Analysis of the recently released statistics, including those of the Commerce Department, demonstrates just how tricky this process can be from month to month. The headlines are encouraging enough as they indicate a gain in durable goods orders of 2.7%. That is good news, right? It would be if the hike in orders was better distributed. However, once again, the transportation sector throws the numbers off.

The airplane manufacturing sector is a huge part of the industrial community, and it is a business that is not known for its smooth patterns. If Boeing has a good month, as they did this time, the durable goods numbers look pretty swell; and if they have a bad month in sales, the numbers look grim. Step one, therefore, is to strip out those airplane numbers to see what else is happening in the sector.

The first blush look at the data is depressing. The numbers suggest a pretty profound decline of 3.6% from last month, and some of the detailed reports on new orders look even worse. That assessment might be premature as this is the time of year that creates problems for statistical analysis. The system used by the Commerce Department is subject to some serious criticism by economists for the way it handles seasonality. This means that what looks like a real collapse in the durable goods numbers may not really be all that awful. This creates some consternation and confusion -- 'what is really happening here?'

Analysis: This is when other pieces of information become critical. The Purchasing Managers Index is a much better month to month gauge as far as the overall manufacturing sector is concerned, but it doesn't necessarily strip out the durable goods makers. For what it's worth, the PMI has been pointing in a pretty confident direction for the bulk of the year.

The manufacturing community is once again between a rock and a hard place. The growth over the last few months has been largely propelled by the anticipation of more robust economic growth and, given the data over the last couple of months, it is a good bet that there will be growth. It is not easy to determine just how much growth there will be, however, and that means that some manufacturers will have overproduced in anticipation of consumer response.

Source: Armada Corporate Intelligence

Exporting Up, So is Trade Deficit

In its latest release, the Commerce Department tried to deflect attention away from the still growing trade deficit and China's continued dominance in that area by focusing on near-record exporting activity. And despite gains, the trade deficit grew another 5.9% to $40.6 billion. It's the highest tally in more than four months.

U.S. Commerce Secretary Gary Locke noted that U.S. exports of goods and services in December increased 1.8% from November to $163 billion. U.S. imports also accelerated, by 2.6 percent to $203.5 billion. That leaves the overall trade deficit growing at $40.6 billion.

Lock noted that following a 14.6% decline in 2009, "exports grew 16.6% in 2010, compared with an average annual rise of 11.2% during 2002-2008. Exports of goods and services in 2010 reached $1.83 trillion, the second highest annual total on record and the largest year-to-year percent change in over 20 years." In 2010, exports contributed to nearly half gross domestic product growth.

"U.S. exports showed strong growth in 2010, increasing 16.6% over 2009 levels, putting us on track to achieve President Obama's National Export Initiative goal of doubling exports by the end of 2014," he said. "Exports are leading the U.S. economic recovery and helping to create high-quality jobs for the American people."

NACM Economic Advisor Chris Kuehl noted that news of near record exporting is good, but talk of reducing the trade deficit is tantamount to silliness:

"As long as the U.S. imports more than 60% of its oil and retains a fondness for inexpensive goods made in China, there will be far more imports than there are exports...The most worrisome aspect of the trade situation is that much of the export gain can be attributed to the weak dollar, and that is not a situation that will last forever. The Fed and the White House continue to assert that the US is committed to a strong dollar policy, but there has been little evidence that this has really informed decisions of late. There is always talk that the US can dig itself out of its deficit and debt hole with the right amount of economic growth, and there continue to be those who assert that the improved export sector will be the ticket to some of that expansion. The reality is that the U.S. will not be able to create a trade surplus under any but the most trying conditions. The only way to reduce that gap is to drastically reduce imports and that is just not possible unless the economy slides into some kind of crushing depression. If this latest recession is not enough to eliminate the deficit, it is obvious that the U.S. will not want to see the kind of decline that would do the trick."

Brian Shappell, NACM staff writer

January CMI Reports Jump in Extension of Credit

"The assertion is that 2011 is the transition year 2010 was supposed to be," said Chris Kuehl, PhD, managing director for Armada Corporate Intelligence and economic advisor for the National Association of Credit Management (NACM). "The ‘green shoots' that started to appear about this time last year wilted and died by the end of spring, but 2011 is starting to show some signs of greater economic stability," he said. "This trend has been noted in several indexes and indicators and the Credit Managers' Index (CMI) is no exception." There was an overall improvement in the numbers-from 55.8 to 56.4-the highest point reached in the combined index since April 2010 when the index hit 56.5. What makes this latest number more encouraging is the expectation that the index will continue to see improvement over the next several months, noted Kuehl. Back in April that high point was followed by steady decline that took the index all the way back to 53 in August before a slow rebound got underway.

The most encouraging indicator this month is amount of credit extended. The jump from 61.7 to 64.8 is very significant as this is the signal that many have been waiting to see. While sales and new credit applications slowed a little in January, the numbers remain robust due to the overall increase in activity in these indicators over the past several months. Sales dropped from 65.9 to 63.5, which is still very respectable given that the holiday season had ended. New credit applications fell from 60.1 to 58.6, but that is also somewhat attributable to the arrival of a generally slow time of year as compared to the last quarter.

The fact that credit extended sharply increased despite the slowdown in sales and credit applications indicates more credit availability than in previous months-quite a bit more. This indicator has not seen such high readings since early 2008, and those were barely at 62, much less at 64.8. Banks are reporting a loosening of credit in the United States and since lenders are more active, more commercial credit is appearing as well. Companies are far more willing to offer credit and, as they start to consider expansion in the coming year, it will also create more opportunity to engage their clients.

This was not the only piece of good news in the CMI. There was improvement across the board in the negative factors. Rejection of credit applications was subdued and there was improvement in accounts placed for collection. Even disputes and bankruptcy data showed improvement. The positive development in these negative indicators over the last few months has been identified as an important trend in previous years.

"As companies start to see increased sales and begin to anticipate growth opportunities in coming months, it is important that they get positioned to take on more debt, if needed, for that expansion," said Kuehl. "If they are planning to access more credit, they generally have to catch up on their current debt first." In the midst of the downturn, companies tried to conserve cash flow at all costs, during which they are more prone to stretching out credit obligations. The result is reflected in the deterioration of unfavorable factors. As companies recover and catch up on their credit, they are in a position to request more and in a position to be granted that access. "This is what seems to be happening now," said Kuehl. "Companies are setting themselves up for more growth in the months to come. The data from the CMI is reflected in the latest economic numbers from the Purchasing Managers Index (PMI) as well as surveys from groups like the National Association of Business Economists and the Conference Board."

The index now stands at a level that normally signals more rapid expansion in the near future.

Click here to view the full report, complete with tables and graphs, along with CMI archives.

Source: National Association of Credit Management

Philly Fed: Manufacturing Growth Continues, But Pace Unexpectedly Slowed

Manufacturing was one of few bright spots for the economy in 2010, and it's expected to be much of the same story this year. However, while results were still positive, market-watchers got a surprise Thursday when an index tracking the sector actually declined from December.

The Federal Reserve Bank of Philadelphia's January 2011 Business Outlook Survey, generally seen as somewhat of a bellwether indicator for manufacturing, predicted the sector will remain in a growth mode for much, if not all, of 2011. However, it was notable and somewhat unsettling that the survey's future general activity index fell five points, to 49.8 from 55.4 in January. Similarly, the indexes for future new orders and shipments "remained at relatively high levels but also declined, falling 7 and 3 points, respectively."

Still, Philly's Fed branch assured that indicators such as long-term demand, new orders and shipments, among others, point to continued manufacturing growth. And though the index declines raised a few eyebrows, the Fed maintained "firms remain quite confident that an expansion of manufacturing activity will continue through the first half of the year."

Brian Shappell, NACM staff writer

Armada: Oil Prices Will Affect Other Commodities

The issue of farm commodities has been front and center for the past several months already as the demand for grain by the global population is coming close to exceeding the ability of the farming community to keep pace. The droughts in Russia and Ukraine coupled with floods that ravaged parts of South Asia and China last year sent commodity prices spiking and inspired people to think about the 2008 food crisis when there were widespread riots over access to food in some parts of the world.

The situation this year is still unknown, but there are more than a few troubling signs. The harvests from the Latin producers have been compromised by very hot and dry weather, and that has the world facing a deficit already. The drought seems to have partially lifted in Russia and Ukraine, but few expect a bumper crop at this point. The burden of production will fall on the United States and Canada again this year and, thus far, the situation looks reasonable. Still, analysts point out that conditions could deteriorate very quickly.

The United States controls 55% of the world corn market, 44% of soybeans, 41% of cotton and 28% of wheat. The U.S. Department of Agriculture price index covers 44 commodities -- that index is 24% higher than it was a year ago. The price of every commodity has risen sharply in the last year, headlined by wheat settling at a price that is 80% higher than a year ago. All of this has taken place without the added impact of higher oil prices. Now that the planting season is upon domestic farmers, the cost of getting machinery in the field has risen sharply, and that will ultimately be reflected in the price of the commodities/the food products produced.

Analysis: The oil price crisis is not expected to last much longer due to the efforts on the part of the producers to convince markets that there is plenty to meet demand. The situation with farm commodities is much different as this has been far more demand driven. The fact is that the global population is eating better and, thus, demanding more food. The bulk of grains are used to feed animals and, as people in China and other fast growing nations are better able to afford meat, there is a greater need for the feed grain. There are also growing demands for corn and other products for the production of fuel. The concern is that food shortages will appear in 2011 and 2012. If so, there is fear the food riots that emerged in the last crisis will appear again and add to the ferment in vulnerable states.

Source: Armada Corporate Intelligence

Business Bankruptcies Slowed in 2010

Though total and personal bankruptcies continue to hover at record levels, business bankruptcy filings dropped noticeably in 2010.

The Administrative Office for the United States Courts unveiled bankruptcy statistics for the last calendar year and found the total of business filing at 56,292. That is a 7% decline from CY2009. In fact, 2010 marks the first year Chapter 11 filings decreased since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ushered in sweeping changes, which became effective in 2006.

On the flip side, the rate of total bankruptcies, fueled by personal filings, surged by 8% in CY2010. U.S. Courts said filings in 2010 totaled 1.59 million. However, it was noted that the rate of bankruptcy growth was significantly smaller from 2009 to 2010 than between 2008 and 2009.

Brian Shappell, NACM staff writer

SBA Tries to Ride to the Rescue on Balloon Payments

The U.S. Small Business Administration (SBA) will launch a program later this month to help small businesses refinance their commercial mortgage debt, especially in areas where they face a significant hike in payment requirements known as "balloon payments."

Starting February 28, small businesses contending with maturing commercial mortgages will be able to apply for temporary, 504 loans from SBA. It's part of a new refinancing loan program sparked by the ongoing struggles of the real estate sector and their collateral effects amid the tepid, if not delayed, economic rebound.

"The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years," said SBA Administrator Karen Mills. "As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring their mortgage debt."

Businesses eligible to apply include those with the greatest perceived need: those facing a balloon payment before the end of 2012, said SBA. Borrowers must commit at least 10% equity and work with approved third-party lenders. They will be able to refinance up to 90% of the current appraised property value or 100% of the outstanding mortgage, whichever is lower. Refinancing costs also can be covered, though no other business expenses are eligible. It is estimated by SBA that upwards of 20,000 U.S. small businesses could benefit from the program, which tweaks/relaxes some of the terms of previous 504 program loans.

Brian Shappell, NACM staff writer

Presidential Order Calls on Regulators to Improve, Ease Business Oversight

In yet another attempt to improve sputtering economic growth rates and his image as anti-business, President Barack Obama unveiled an effort aimed at helping U.S. businesses through improving the nation's regulatory framework. In an executive order unveiled Tuesday, the president calls for agencies to work toward eliminating areas of regulatory overlap between them and nix out-of-date regulations entirely.

The executive order, in its entirety, is below:

Improving Regulation and Regulatory Review - Executive Order

By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to improve regulation and regulatory review, it is hereby ordered as follows:

Section 1General Principles of Regulation.  (a)  Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation.  It must be based on the best available science.  It must allow for public participation and an open exchange of ideas.  It must promote predictability and reduce uncertainty.  It must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends.  It must take into account benefits and costs, both quantitative and qualitative.  It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand.  It must measure, and seek to improve, the actual results of regulatory requirements.

(b)  This order is supplemental to and reaffirms the principles, structures, and definitions governing contemporary regulatory review that were established in Executive Order 12866 of September 30, 1993.  As stated in that Executive Order and to the extent permitted by law, each agency must, among other things:  (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.

(c)  In applying these principles, each agency is directed to use the best available techniques to quantify anticipated

present and future benefits and costs as accurately as possible.  Where appropriate and permitted by law, each agency may consider (and discuss qualitatively) values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.

Sec. 2Public Participation.  (a)  Regulations shall be adopted through a process that involves public participation.  To that end, regulations shall be based, to the extent feasible and consistent with law, on the open exchange of information and perspectives among State, local, and tribal officials, experts in relevant disciplines, affected stakeholders in the private sector, and the public as a whole.

(b)  To promote that open exchange, each agency, consistent with Executive Order 12866 and other applicable legal requirements, shall endeavor to provide the public with an opportunity to participate in the regulatory process.  To the extent feasible and permitted by law, each agency shall afford the public a meaningful opportunity to comment through the Internet on any proposed regulation, with a comment period that should generally be at least 60 days.  To the extent feasible and permitted by law, each agency shall also provide, for both proposed and final rules, timely online access to the rulemaking docket on regulations.gov, including relevant scientific and technical findings, in an open format that can be easily searched and downloaded.  For proposed rules, such access shall include, to the extent feasible and permitted by law, an opportunity for public comment on all pertinent parts of the rulemaking docket, including relevant scientific and technical findings.

(c)  Before issuing a notice of proposed rulemaking, each agency, where feasible and appropriate, shall seek the views of those who are likely to be affected, including those who are likely to benefit from and those who are potentially subject to such rulemaking.

Sec. 3Integration and Innovation.  Some sectors and industries face a significant number of regulatory requirements, some of which may be redundant, inconsistent, or overlapping.  Greater coordination across agencies could reduce these requirements, thus reducing costs and simplifying and harmonizing rules.  In developing regulatory actions and identifying appropriate approaches, each agency shall attempt to promote such coordination, simplification, and harmonization.  Each agency shall also seek to identify, as appropriate, means to achieve regulatory goals that are designed to promote innovation.

Sec. 4Flexible Approaches.  Where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public.  These approaches include warnings, appropriate default rules, and disclosure requirements as well as provision of information to the public in a form that is clear and intelligible.

Sec. 5Science.  Consistent with the President's Memorandum for the Heads of Executive Departments and Agencies,

"Scientific Integrity" (March 9, 2009), and its implementing guidance, each agency shall ensure the objectivity of any scientific and technological information and processes used to support the agency's regulatory actions.

Sec. 6Retrospective Analyses of Existing Rules.  (a)  To facilitate the periodic review of existing significant regulations, agencies shall consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.  Such retrospective analyses, including supporting data, should be released online whenever possible.

(b)  Within 120 days of the date of this order, each agency shall develop and submit to the Office of Information and Regulatory Affairs a preliminary plan, consistent with law and its resources and regulatory priorities, under which the agency will periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency's regulatory program more effective or less burdensome in achieving the regulatory objectives.

Sec. 7General Provisions.  (a)  For purposes of this order, "agency" shall have the meaning set forth in section 3(b) of Executive Order 12866.

(b)  Nothing in this order shall be construed to impair or otherwise affect:

(i) authority granted by law to a department or agency, or the head thereof; or

(ii) functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(c)  This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(d)  This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.


Greece Hit with (Another) Massive Ratings Downgrade

Reeling from debt and its workers' demonstrations against austerity measures forced by the European Union and International Monetary Fund, Greece took another proverbial shot to the jaw this week as one of the "Big Three" credit ratings agencies dealt a massive, three-level credit rating downgrade.

Moody's Investors Service downgraded Greece's government bond ratings to a level of Ba1, which is considered junk. Moody's also hit the city of Athens with a similar downgrade, noting that reliance on central government transfers to pay for operations and capital investments makes it and other sizable Greek municipalities "unlikely to possess sufficient financial flexibility to enable their credit quality to be stronger than that of the sovereign."

Moody's, who again came under attack from Greek officials over the move, defended the downgrade decision citing three reasons:

1.) The fiscal consolidation measures and structural reforms that are needed to stabilize the country's debt metrics remain very ambitious and are subject to significant implementation risks.
2.) The country continues to face considerable difficulties with revenue collection.
3.) There is a risk that conditions attached to continuing support from official sources after 2013.

"Moody's recognizes [sic] the very significant progress that Greece has made in implementing a large fiscal consolidation and introducing the legislation required to support a wide-ranging structural reform programme [sic]," the ratings agency said in a statement. "However, Moody's believes that the Greek government still faces a very significant challenge in its continued execution of the measures required to both increase revenue and achieve efficiency savings as part of the austerity programme [sic]. Whether relating to improvements in the operating efficiency of state-operated enterprises, to the savings required in the health service or in military expenditure, or to the implementation of deregulation measures passed by parliament; the task facing officials and managers remains enormous."

The ratings agency, considering the outlook on Greece "negative," now places the likelihood of a Greek government default at upwards of 20% within the next five years. It has been widely reported that ratings agency Standard & Poor's is keeping close watch on Greece's present meetings with fellow euro zone member nations over its debt and solutions to address it. It remains possible, if not downright likely, that a similar ratings downgrade could be on the way from that agency, which already values Greek debt at junk levels and its credit rating as poor.

Greek officials, who have regularly bashed the ratings agencies for their own poor track record of ratings in the run-up to the global economic downturn as well as what it perceives as obvious conflicts of interests in their decision-making, again responded to Moody's with vitriol. They've characterized the latest downgrade as "incomprehensible" and "unjustified," much like they did during downgrades that preceded Greece's acceptance of a bailout package rife with unpopular austerity demands in 2010.

Brian Shappell, NACM staff writer

China-Colombian Rail Link Discussed to Compete with Panama Canal

As a long languishing/unfinished free trade agreement (FTA) between the United States and Colombia continued to draw attention from trade advocates, China has unveiled vague plans to build a rail link through the same nation. It is seen as a direct attempt to compete with the Panama Canal on the world trade states and would be a slap to the United States by grabbing a larger piece of the South American Market. Colombia already conducts more trade with China than any other nation than the U.S., and the Asian economic powerhouse already has substantial presence in emerging economic power Brazil, the pearl of its continent.

The news has given pro-trade advocates and lawmakers, largely Republican, another weapon with which to proverbial bash President Barack Obama and his White House that, despite various recent attempts to extend an olive branch, have been vilified by the American business community.

During last week's FCIB New York International Round Table event, panelist Josh Green, CEO of Panjiva, said he could see the Colombia FTA becoming a casualty of partisan Capitol Hill fighting in the coming months.

Brian Shappell, NACM staff writer

Top Quotes from FCIB's N.Y. International Round Table

Coverage of FCIB's New York International Round Table is available Thursday in NACM's eNews and an extended feature will be included in the soon to be released March issue of Business Credit Magazine. As always, the Round Table featured interested insights and strong opinions on economic and credit conditions in the United States and abroad.

Here are some interesting quotes captured during the Wednesday's event:

"Creditors lose with inflation; debtors, like the U.S. government, win with inflation," said Dan North, chief economist at Euler Hermes ACI. "Some countries now are discouraging investment from foreigners with hot U.S. dollars."

"There's eight times the amount of people among the Indians and Chinese. Protectionism will no longer be an option," said North on projections of the shrinking dominance in relation to world GDP in deference to India and China. "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."

"Access to credit information is getting more and more restrictive [in China], said Joachim Bartels, managing director of the Business Information Industry Association. "They find loopholes on financial information, targeted at Dow Jones, Bloomberg, etc. If we can't deliver commercial credit information, it will be damaging to our market; and it will be damaging to their market.

"Banks are starting to lend again, business is getting done," said Garlow.

"They've become credible inflation fighters," said North on Brazil.

"I don't think there really is a currency war," said Josh Green, CEO of Panjiva. "Currency is a bit of a side show when you think about trade. The future is going to be more about market access. Can we get access to the various Chinese markets, Indian markets?"

"In my world, the big question is where is the next China," said Green. "Realistically, there is no next China. People talk about Africa. But, realistically, what kinds of investments are being made. People go there for stuff, resources, not the people or their skills at anything."

"Quantitative easing (by the Fed) = printing money = inflation pressures," said North. "The Fed soon will be chasing inflation for a long time."

"We must touch third rails of society: Social society and Medicare," said North. It's an ugly job, but if we don't, never going to fix budget."

"Customers are not complying with terms," said David Garlow, VP/country risk manager, of AIG Global Trade. "Conditions are improving, banks are starting to lend again; business is getting done."

Multilateral Trade Pact on Life Support

This really is the do-or-die year for the 10-year-old Doha Development Round trade talks sponsored by the World Trade Organization. Still, that hardly means world powers will react any differently than they have in the past despite the likelihood that passing something similar to what is now on the table would pump some $360 billion in trade annually.

Every effort to get the trade talks off dead center have met with bitter disappointment, and it's usually for the same reasons. Now there is yet another surge in interest provoked by what looks like a renewed interest in trade in the United States, though some skeptics assert little came from President Barack Obama's State of the Union speech that had not been heard many times before. There is a lack of confidence from the latter camp that anything dramatic will be introduced to back up the comments, but there's more hope than in previous years.

The barriers to Doha are simple, yet vexing to those who see the advantages of trade. The focus always has been market access. The United States and Europe want to be able to sell their services into the developing markets as well as access for their consumer and industrial goods. Developing nations want to access the European and U.S. markets for their farm production, consumer goods and their industrial output, which seems simple enough in the theoretical trade sense. The problem is that there are groups in every nation who want no part of that import competition and will fight to the bitter end to keep rivals at bay. For a decade, these forces have overwhelmed those who would benefit from the trade.

A simple trade pact has problems enough, as evidenced by the delays by the United States to complete favorable deals with Colombia, Panama and, until recently, South Korea. When the trade pact is based on a multilateral approach, the difficulty is magnified considerably. Any deal on access to a given market automatically must be offered to any member of the WTO; that includes just about every nation on the planet. Though economic benefits far outweigh the concerns, the trepidation is understandable.

Analysis: The business community typically is more enthusiastic about the multilateral trade deal than the many individual pacts that get signed. It is far easier to develop a trade strategy when the rules are universal as opposed to contending with different sets of tactics for each nation involved in trade. The complexity of the current system means that many companies quit trying to access those markets that would otherwise be prime opportunities. Keeping track of all the rules, regulations and opportunities provided by the various trade deals can be intimidating for the smaller companies. They are the biggest supporters of the larger pact, but their voices tend to get drowned out by those who assume they will be losers in the new trade environment. Supporters of the Doha attempt point out that conditions are ripe to make a push to complete a deal. The possibility for passage should grow steadily worse in the years ahead because of the oncoming elections in key nations.

Source: Armada Corporate Intelligence's Strategic Global Intelligence Brief

German Economic Growth Carrying Europe

The latest set of polls and surveys reinforce the message that has been coming from Europe as a whole for several months: the German economy is confident and growing.

The surveys of business, investors and consumers are all converging to send the same message that the German economy is strong, getting stronger and instrumental in dragging much of the euro zone economy along with it. Just as important is the fact that not every nation is getting a chance to hang on to the German coat tails, which will present some issues in the months ahead. Germany's latest PMI data is coming from a "flash" index based on surveys of about 2,000 businesses. The statistics are not as reliable and complete as the bigger PMI studies released in a week but, thus far, have been pretty solid indicators of what is to come. The latest number is 55.2, and its new business index hit 55.4, a 39-month high for that sub-index. This is also well above last month's level - 53.9. That suggests growth has been consistent and poised for more rapid acceleration in the months to come. That assumes that the European Central Bank (ECB) is not forced to start acting against inflation. Even should that develop, the German economy appears to be better insulated than those in most in Europe partly due to the ongoing ability of its business to diversify their market position.

It is widening the gulf between the Germans and the rest of Europe that worries many. At the same time that confidence in the German economy has reached a 20-year peak, the attitudes in the financially strapped nations have weakened. The new order numbers in Ireland, Portugal, Greece and Spain have fallen to five-month lows, and there is little expectation that conditions will improve before the end of the year or perhaps into 2012. The rate of joblessness has improved in Germany, but the Eurozone as a whole likely will hover around 10% for the bulk of the year. It may even worsen as the various austerity plans start to get serious.

Analysis: The division between the nations that are coming out of the recession and those still mired in the crisis will create some very awkward moments in the near future. Start with the potential moves the ECB will feel compelled to take if inflation becomes the issue they fear. The Germans and the French will demand that the rates be hiked sooner than later despite the potential to cripple the recovery efforts in the worst hit nations. The already strained unity of the European Union will be pushed to the breaking point. The last thing these states want is to see the Euro get stronger at the same time that debt is harder to accumulate. The Germans and other healthier economies will be under even greater pressure to bail these nations out. That will hardly be a popular political decision. Such division fuels those who question the ability of the Euro itself to survive the crisis. At present, the powers that be are saying the right thing about the Euro and the need for euro zone unity. However, the diverging nature of economic growth will put the whole system to the test unless the rise of the German and French economies is enough to haul some of the others out of the abyss.

Source: Armada Corporate Intelligence's Strategic Global Intelligence Brief

Red Flags Regulations Currently Under Enforcement

While the Red Flags Clarification Act may have exempted a number of very specific types of small businesses, it didn't exempt all of them.
For this reason, the Federal Trade Commission's (FTC's) much-discussed, oft-delayed "Red Flags" rules went into effect with the New Year, meaning many entities need to be in compliance with the amended statute. As described by the FTC, the new law "gives businesses the flexibility to tailor their written ID theft detection program to the nature of the business and the risks it faces. Businesses with a high risk for identity theft may need more robust procedures-like using other information sources to confirm the identity of new customers or incorporating fraud detection software. Groups with a low risk for identity theft may have a more streamlined program-for example, simply having a plan for how they'll respond if they find out there has been an incident of identity theft involving their business."
"We're pleased Congress clarified its law, which was clearly overbroad," said FTC Chairman Jon Leibowitz. "Now we can go forward with less litigating and more protecting consumers from identity theft."
While the new legislation made the "Red Flags" rules apply to far fewer businesses, it failed to exempt trade creditors in any meaningful way. "I don't think this changes a thing for our trade creditors," said Wanda Borges, Esq. of Borges & Associates, LLC. "It's so short and almost nonsensical, I really think they accomplished very little." Specifically, Borges noted that the bill's adjustments to the definition of what constitutes a "creditor" fail to explicitly exclude trade creditors. Moreover, a provision at the end of the bill serves as something of a catch-all, noting that creditors can be required to comply with the "Red Flags" Rule if they're determined to maintain accounts subject to a reasonably foreseeable risk of identity theft.
Instead, according to Borges, the law allows businesses to better determine how at risk for identity theft they are, and how much they have to do to comply with the regulations. "They may have succeeded in eliminating the need for small law firms and small doctor's offices to have 'Red Flags' programs in place, but that catch-all at the end means our trade creditors aren't exempt," she added. "I think what it does is gives businesses a better opportunity to determine whether or not they're low risk or high risk. It's clear that they have not excluded trade credit."
NACM continues to seek further clarification from the FTC. Stay tuned to NACM's eNews and Credit Real-Time Blog for updates.
Jacob Barron, NACM staff writer

Heavy Talk in State of the Union on Small Businesses, Trade

President Barack Obama delivered the annual State of the Union address with a bit less of a partisan, pep-rally atmosphere than has been present at the speech in recent years, and it certainly carried far from celebratory tone over achievements of the last year. Much of the speech read like jet another open love letter from the president to the business community, especially smaller operations, that White House is serious about improving conditions for U.S. industry.

Though much of the speech revolved around looking forward, "doing better" and "reinventing ourselves, Obama quickly and decisively pointed out ways the administration was willing to extend the olive branch to businesses. Key among them was restating the plan unveiled in January to eliminate unnecessary regulatory overlap, such as 12 different agencies having a hand in certain business mandates or, in a somewhat joking aside, that two departments are responsible for salmon, pending on what part of the production process the industry is in.

Additionally, Obama shined a light on an issue dear to the GOP: trade. He made no less than four references in the speech to South Korea, with whom the United States just signed a new free trade agreement. He also strongly reaffirmed the plan to step up exporting activity not just in the long-term, but right now. The president also all but promised a huge push to amend last year's health care legislation to remove 1099 provisions that would lead to a heap of unnecessary, unwanted paperwork by U.S. businesses.

Brian Shappell, NACM staff writer

Senate Repeals Controversial 1099 Provision, House Holds Hearings

House Ways and Means Committee Chairman Predicts Repeal Action Before March

After several failed attempts in the last Congress, the Senate finally voted to repeal the controversial 1099 requirement, originally passed as part of the health care reform bill.

In a bipartisan, 81-17 vote, the Senate agreed to erase the provision that would've required small businesses to file an Internal Revenue Service form 1099 for every vendor from whom they annually buy $600 worth of goods or services. The measure was originally enacted as a revenue generator, but quickly drew the ire of small business owners and advocacy associations nationwide, eventually becoming universally reviled.

The repeal came in the form of an amendment attached to the Federal Aviation Administration (FAA) Reauthorization bill.

"Today we provided a common-sense solution for business owners so they can focus on creating jobs, not filling out paperwork for the IRS," said Sen. Debbie Stabenow (D-MI), who proposed the successful 1099 repeal amendment. "Since last year, I have worked with my colleagues on both sides of the aisle to address this problem. If left unchecked, 40 million small businesses would see their IRS 1099 paperwork increase 2000%."

Repeal efforts in the House continue, however, most recently in the form of a hearing, titled "Buried In Paperwork: A 1099 Update," held in the House Committee on Small Business. "This new 1099 requirement will cause an avalanche of additional 1099 forms to be filed, and affect over 36 million entities," said committee chairman Sam Graves (R-MO). "At a time when we should be making it easier to create jobs, promote growth and invest in our economy, small firms don't need yet another costly and burdensome mandate."

Due to the tax implications inherent in a repeal measure, any bill that eliminates the 1099 requirement will have to pass through the House's Ways and Means Committee, which has jurisdiction over the tax code, before reaching the full House for a vote. However, Ways and Means Committee Chairman Dave Camp (R-MI) has indicated that he expects his committee to take up the repeal effort before March 1, 2011.

Stay tuned to NACM's eNews and Credit Real-Time Blog for latebreaking updates on the 1099 repeal efforts.

Jacob Barron, NACM staff writer

Bernanke Takes to Hill to Defend Fed Policies

Federal Reserve Chairman Ben Bernanke appeared before the Senate Banking Committee Tuesday to present the Semiannual Monetary Policy Report. The following is his perpared testimony, as confirmed by the Fed on its website:

The Economic Outlook
Following the stabilization of economic activity in mid-2009, the U.S. economy is now in its seventh quarter of growth; last quarter, for the first time in this expansion, our nation's real gross domestic product (GDP) matched its pre-crisis peak. Nevertheless, job growth remains relatively weak and the unemployment rate is still high.

In its early stages, the economic recovery was largely attributable to the stabilization of the financial system, the effects of expansionary monetary and fiscal policies, and a strong boost to production from businesses rebuilding their depleted inventories. Economic growth slowed significantly in the spring and early summer of 2010, as the impetus from inventory building and fiscal stimulus diminished and as Europe's debt problems roiled global financial markets. More recently, however, we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. Notably, real consumer spending has grown at a solid pace since last fall, and business investment in new equipment and software has continued to expand. Stronger demand, both domestic and foreign, has supported steady gains in U.S. manufacturing output.

The combination of rising household and business confidence, accommodative monetary policy, and improving credit conditions seems likely to lead to a somewhat more rapid pace of economic recovery in 2011 than we saw last year. The most recent economic projections by Federal Reserve Board members and Reserve Bank presidents, prepared in conjunction with the Federal Open Market Committee (FOMC) meeting in late January, are for real GDP to increase 3-1/2 to 4 percent in 2011, about one-half percentage point higher than our projections made in November.1 Private forecasters' projections for 2011 are broadly consistent with those of the FOMC participants and have also moved up in recent months.

While indicators of spending and production have been encouraging on balance, the job market has improved only slowly. Following the loss of about 8-3/4 million jobs from early 2008 through 2009, private-sector employment expanded by only a little more than 1 million during 2010, a gain barely sufficient to accommodate the inflow of recent graduates and other entrants to the labor force. We do see some grounds for optimism about the job market over the next few quarters, including notable declines in the unemployment rate in December and January, a drop in new claims for unemployment insurance, and an improvement in firms' hiring plans. Even so, if the rate of economic growth remains moderate, as projected, it could be several years before the unemployment rate has returned to a more normal level. Indeed, FOMC participants generally see the unemployment rate still in the range of 7-1/2 to 8 percent at the end of 2012. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.

Likewise, the housing sector remains exceptionally weak. The overhang of vacant and foreclosed houses is still weighing heavily on prices of new and existing homes, and sales and construction of new single-family homes remain depressed. Although mortgage rates are low and house prices have reached more affordable levels, many potential homebuyers are still finding mortgages difficult to obtain and remain concerned about possible further declines in home values.

Inflation has declined, on balance, since the onset of the financial crisis, reflecting high levels of resource slack and stable longer-term inflation expectations. Indeed, over the 12 months ending in January, prices for all of the goods and services consumed by households (as measured by the price index for personal consumption expenditures (PCE)) increased by only 1.2 percent, down from 2.5 percent in the year-earlier period. Wage growth has slowed as well, with average hourly earnings increasing only 1.9 percent over the year ending in January. In combination with productivity increases, slow wage growth has implied very tight restraint on labor costs per unit of output.

FOMC participants see inflation remaining low; most project that overall inflation will be about 1-1/4 to 1-3/4 percent this year and in the range of 1 to 2 percent next year and in 2013. Private-sector forecasters generally also anticipate subdued inflation over the next few years.3 Measures of medium- and long-term inflation compensation derived from inflation-indexed Treasury bonds appear broadly consistent with these forecasts. Surveys of households suggest that the public's longer-term inflation expectations also remain stable.

Although overall inflation is low, since summer we have seen significant increases in some highly visible prices, including those of gasoline and other commodities. Notably, in the past few weeks, concerns about unrest in the Middle East and North Africa and the possible effects on global oil supplies have led oil and gasoline prices to rise further. More broadly, the increases in commodity prices in recent months have largely reflected rising global demand for raw materials, particularly in some fast-growing emerging market economies, coupled with constraints on global supply in some cases. Commodity prices have risen significantly in terms of all major currencies, suggesting that changes in the foreign exchange value of the dollar are unlikely to have been an important driver of the increases seen in recent months.

The rate of pass-through from commodity price increases to broad indexes of U.S. consumer prices has been quite low in recent decades, partly reflecting the relatively small weight of materials inputs in total production costs as well as the stability of longer-term inflation expectations. Currently, the cost pressures from higher commodity prices are also being offset by the stability in unit labor costs. Thus, the most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation--an outlook consistent with the projections of both FOMC participants and most private forecasters. That said, sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored. We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability.

Monetary Policy
As I noted earlier, the pace of recovery slowed last spring--to a rate that, if sustained, would have been insufficient to make meaningful progress against unemployment. With job creation stalling, concerns about the sustainability of the recovery increased. At the same time, inflation--already at very low levels--continued to drift downward, and market-based measures of inflation compensation moved lower as investors appeared to become more concerned about the possibility of deflation, or falling prices

Under such conditions, the Federal Reserve would normally ease monetary policy by reducing the target for its short-term policy interest rate, the federal funds rate. However, the target range for the federal funds rate has been near zero since December 2008, and the Federal Reserve has indicated that economic conditions are likely to warrant an exceptionally low target rate for an extended period. Consequently, another means of providing monetary accommodation has been necessary since that time. In particular, over the past two years the Federal Reserve has eased monetary conditions by purchasing longer-term Treasury securities, agency debt, and agency mortgage-backed securities (MBS) on the open market. The largest program of purchases, which lasted from December 2008 through March 2010, appears to have contributed to an improvement in financial conditions and a strengthening of the recovery. Notably, the substantial expansion of the program announced in March 2009 was followed by financial and economic stabilization and a significant pickup in the growth of economic activity in the second half of that year.

In August 2010, in response to the already-mentioned concerns about the sustainability of the recovery and the continuing declines in inflation to very low levels, the FOMC authorized a policy of reinvesting principal payments on our holdings of agency debt and agency MBS into longer-term Treasury securities. By reinvesting agency securities, rather than allowing them to continue to run off as our previous policy had dictated, the FOMC ensured that a high level of monetary accommodation would be maintained. Over subsequent weeks, Federal Reserve officials noted in public remarks that we were considering providing additional monetary accommodation through further asset purchases. In November, the Committee announced that it intended to purchase an additional $600 billion in longer-term Treasury securities by the middle of this year.

Large-scale purchases of longer-term securities are a less familiar means of providing monetary policy stimulus than reducing the federal funds rate, but the two approaches affect the economy in similar ways. Conventional monetary policy easing works by lowering market expectations for the future path of short-term interest rates, which, in turn, reduces the current level of longer-term interest rates and contributes to both lower borrowing costs and higher asset prices. This easing in financial conditions bolsters household and business spending and thus increases economic activity. By comparison, the Federal Reserve's purchases of longer-term securities, by lowering term premiums, put downward pressure directly on longer-term interest rates. By easing conditions in credit and financial markets, these actions encourage spending by households and businesses through essentially the same channels as conventional monetary policy.

A wide range of market indicators supports the view that the Federal Reserve's recent actions have been effective. For example, since August, when we announced our policy of reinvesting principal payments on agency debt and agency MBS and indicated that we were considering more securities purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen to historically more normal levels. Yields on 5- to 10-year nominal Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases. All of these developments are what one would expect to see when monetary policy becomes more accommodative, whether through conventional or less conventional means. Interestingly, these market responses are almost identical to those that occurred during the earlier episode of policy easing, notably in the months following our March 2009 announcement. In addition, as I already noted, most forecasters see the economic outlook as having improved since our actions in August; downside risks to the recovery have receded, and the risk of deflation has become negligible. Of course, it is too early to make any firm judgment about how much of the recent improvement in the outlook can be attributed to monetary policy, but these developments are consistent with it having had a beneficial effect.

My colleagues and I continue to regularly review the asset purchase program in light of incoming information, and we will adjust it as needed to promote the achievement of our mandate from the Congress of maximum employment and stable prices. We also continue to plan for the eventual exit from unusually accommodative monetary policies and the normalization of the Federal Reserve's balance sheet. We have all the tools we need to achieve a smooth and effective exit at the appropriate time. Currently, because the Federal Reserve's asset purchases are settled through the banking system, depository institutions hold a very high level of reserve balances with the Federal Reserve. Even if bank reserves remain high, however, our ability to pay interest on reserve balances will allow us to put upward pressure on short-term market interest rates and thus to tighten monetary policy when required. Moreover, we have developed and tested additional tools that will allow us to drain or immobilize bank reserves to the extent needed to tighten the relationship between the interest rate paid on reserves and other short-term interest rates.5 If necessary, the Federal Reserve can also drain reserves by ceasing the reinvestment of principal payments on the securities it holds or by selling some of those securities in the open market. The FOMC remains unwaveringly committed to price stability and, in particular, to achieving a rate of inflation in the medium term that is consistent with the Federal Reserve's mandate.

Federal Reserve Transparency
The Congress established the Federal Reserve, set its monetary policy objectives, and provided it with operational independence to pursue those objectives. The Federal Reserve's operational independence is critical, as it allows the FOMC to make monetary policy decisions based solely on the longer-term needs of the economy, not in response to short-term political pressures. Considerable evidence supports the view that countries with independent central banks enjoy better economic performance over time.6

However, in our democratic society, the Federal Reserve's independence brings with it the obligation to be accountable and transparent. The Congress and the public must have all the information needed to understand our decisions, to be assured of the integrity of our operations, and to be confident that our actions are consistent with the mandate given to us by the Congress.

On matters related to the conduct of monetary policy, the Federal Reserve is one of the most transparent central banks in the world, making available extensive records and materials to explain its policy decisions. For example, beyond the semiannual Monetary Policy Report I am presenting today, the FOMC provides a post-meeting statement, a detailed set of minutes three weeks after each policy meeting, quarterly economic projections together with an accompanying narrative, and, with a five-year lag, a transcript of each meeting and its supporting materials. In addition, FOMC participants often discuss the economy and monetary policy in public forums, and Board members testify frequently before the Congress.

In recent years the Federal Reserve has also substantially increased the information it provides about its operations and its balance sheet. In particular, for some time the Federal Reserve has been voluntarily providing extensive financial and operational information regarding the special credit and liquidity facilities put in place during the financial crisis, including full descriptions of the terms and conditions of each facility; monthly reports on, among other things, the types of collateral posted and the mix of participants using each facility; weekly updates about borrowings and repayments at each facility; and many other details.7 Further, on December 1, as provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Federal Reserve Board posted on its public website the details of more than 21,000 individual credit and other transactions conducted to stabilize markets and support the economic recovery during the crisis. This transaction-level information demonstrated the breadth of these operations and the care that was taken to protect the interests of the taxpayer; indeed, despite the scope of these actions, the Federal Reserve has incurred no credit losses to date on any of the programs and expects no credit losses in any of the few programs that still have loans outstanding. Moreover, we are fully confident that independent assessments of these programs will show that they were highly effective in helping to stabilize financial markets, thus strengthening the economy. Overall, the operational effectiveness of the programs was recently supported as part of a comprehensive review of six lending facilities by the Board's independent Office of Inspector General.8 In addition, we have been working closely with the Government Accountability Office, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Congressional Oversight Panel, the Congress, and private-sector auditors on reviews of these facilities as well as a range of matters relating to the Federal Reserve's operations and governance. We will continue to seek ways of enhancing our transparency without compromising our ability to conduct policy in the public interest.

Thank you.