Only six more sleeps…

We must now be patient and wait until November 24 to get the results from the head butting, recalcitrant and entrenched political disputes to be determined by the US Super Committee’s patchwork response to the US debt crisis. This will undoubtedly keep the media in a frenzy and the markets in free fall until the deadline on default reaches its climax.

There is little chance that the Democrats are going to cave in to demands to cut back Medicare and Social Security payments to the most disadvantaged while the Occupy Wall Street movement is gaining momentum. Equally there is little chance that the Republicans are going to allow the rich to have to pay higher taxes when the Reagan concessions run their course.

If this next episode of intransigence is not resolved, the guillotine will fall on US$50 billion in defence spending after next year’s Presidential elections and about US$600 billion over the following 10 years. Coming on top of the threat to European and US banks that are heavily impacted by the conflict between Sarkozy and Merkel’s views of moral hazard in the European debt crisis, there is plenty for the financial media to fret about.

There is a significant chance that the United States AAA rating from Moody’s and Fitch could be downgraded just as the rating of Brazil is being raised. Fitch ratings agency has warned that “unless the euro zone debt is resolved in a timely and orderly manner, the broad credit outlook for the US banking industry could worsen.”

This would have the effect of damaging the fragile recovery in the world’s biggest economy and encouraging another round of gold haven purchases, purse tightening and bond raising – at a time when even the mighty K-Mart-Sears retail empire is showing a 40% fall in market value.

The falling equities markets and a significant drop (5.3 points) in consumer confidence in the last week, however, should be seen as a temporary response to the replacement of a couple of democratically elected Prime Ministers in Greece and Europe and the failure of the US President to get a deal between the two sides of Congress.

Under these condition is understandable that there has been a fall back in consumer confidence and banks are concerned about their lending books. Roy Morgan Consumer Confidence reports a weekly fall of 4.3 points to 112.1. Driving the fall was a large rise in Australians expecting “bad times financially” for Australia during the next 12 months (35%, up 7%). and a steep fall in Australians saying now is a “good time to buy” major household items (55%, down 5%).

Smart companies will not be spooked by either the claims that Spain and Portugal will be added to the Euro zone crisis or the fact that many US states face severe cuts in the boondoggling defence budgets for their areas.

The key is to remember that US election year will see a boost to their economy and a focus on growth with a consequent rise in the US dollar bringing Australian exporters some significant gains and creating opportunities for import substitution. Richard Grace, CBAs chief currency strategist says “all the risk for the Australian dollar are to the downside. I don’t think there are many upside risks for the Aussie dollar at this point in time. A mild euro zone recession should not significantly impact global economic activity.”

The reality is that Australian firms are parked in the right region at the right time to expand their operations and make the most of the emerging trade zone that is coming out of the series of international leaders meeting in this region. Remember it’s only six more sleeps and a good Christmas season is just around that corner.

Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Colin is also a member of the global Association of Professional Futurists.