What's Important in the Financial World Today (11/7/2011) Gas Prices, Super Committee

France’s economic woes. Concern about eurozone sovereign finances has swung quickly from Greece to Italy and France. The change has happened even though the trouble in Greece has gotten worse. This means contagion will not hamper the ability of countries in the region to raise money. A GDP slowdown will keep wary investors away. France says it will make very deep national expense cuts to keep its deficit in line with the expectations set when its economy was still growing. The country is desperate to keep its AAA rating, which should keep a cap on its cost to raise money. The expanding number of nations at risk for sovereign debt trouble means that a newly capitalized European Financial Stability Facility may be insufficient for the number of bailouts that could be necessary.

Low hopes for super committee. The anticipation that the congressional “super committee” will make a recommendation on deficit reduction measures, taxation levels and a job stimulus program has deteriorated quickly in the past two days.  That could cause a series of problems, if the indecision reaches the November 21 deadline. The lack of recommendations will trigger automatic budget cuts of $1.2 trillion. The first problem if the committee stays deadlocked is that unemployment benefits for millions of Americans out of work for more than 99 weeks may not be extended. That will take many more people out of the U.S. consumer economy. The lack of a jobs bill could make long-term unemployment trouble even worse. The president says his jobs bill will add 2 million to 3 million workers. Even if that number is optimistic, without employment stimulus, it is difficult to believe that the private sector will begin to rapidly add jobs. Too many companies think the recession of 2007 to 2010 continues to linger.

Europe stock panic. Another small panic in stock sales has begun in Europe. Markets there have made a strong recovery since September, but concerns about an EU-wide recession have started to push shares down again. The worry is compounded by the lack of a deal to rescue Greece and new troubles with the deficits of Italy and France. EU-based bank stocks are under pressure again. None of them has been recapitalized to offset holdings of Greek sovereign paper. When these financial firms need the money the most, capital market investors may be so worried about the region that they will not provide the necessary funds — at least not on terms the banks can afford.

Gas prices going up. The AAA driver assistance firm says it expects gas prices to rise for Thanksgiving. Demand could make that trend continue into December. Gas prices may move back toward $3.50, which would place them $0.50 higher than they were last Thanksgiving weekend. Worries about how much money consumers will have this holiday season will be heightened if people need to spend a great deal more to travel. Airlines ticket prices are already up this year as the industry tries to offset its own fuel costs.

Douglas A. McIntyre