What's Important in the Financial World (8/1/2012)

The Thomson Reuters/PayNet Small Business Lending Index showed that small business borrowing dropped in June. The news service reported that its measure “sagged to 98.5 from 103.8 in May.” The number was the lowest since last October. Of course, in the period from October to mid-spring many experts believed that the American economy was on the mend. If the fact that something like half of all U.S. jobs are at companies with fewer than 10 workers and that job creation is usually more robust among these firms than among large companies, this new information is particularly bad. It is also an indication that banks have lost confidence in lending to operations that are likely to have few customers and nonexistent balance sheets, no matter how promising their prospects may seem.

India Blackout Blame Game

The most recent part of the saga of the blackout that put 600 million people in India in darkness for a day is that the central government and the states have started to fight over whose fault the trouble was. That tension probably will stall any attempt to get at the root of the infrastructure malfunction that caused the catastrophe. In the meantime, both Indian citizens and foreign companies that do business in the world’s second most populous nation can only guess when another similar event will occur and how often the problem will resurface. And there is no resolution in sight. The New York Times reports:

India’s basic power problem is that the country’s rapid development has led demand to far outstrip supply. That means power officials must manage the grid by shutting down power to small sections of the country on a rotating basis. But doing so requires quick action from government officials who are often loathe to shut off power to important constituencies.

Looking Back at July

As investors look back at July, they were heartened by the fact that the major U.S. indexes rose. The news was particularly satisfying because so many companies reported mediocre or poor earnings. Then there was the trouble in Europe. It is worth remembering that the DJIA reached an all-time peak in late 2007, just before the vicious recession hit. That event and the fact that the Dow has moved above 13,000 recently may not be entirely linked. But a market run-up often does not coincide with an economic recovery, no matter how tempting it is to think so.

Douglas A. McIntyre