December 30, 2010


Suddenly, the U.S. Is Where the Optimism Is (Rich Miller and Simon Kennedy, 12/30/10, BusinessWeek)

The battle to extend the Bush-era tax cuts was politically divisive, and the process agonizingly prolonged. Yet the decision to continue the cuts—and throw in a few others—is already producing something the U.S. economy needs: optimism. While U.S. growth has accelerated in recent months, the tax deal, signed into law in December, has suddenly made economists, consumers, and companies such as General Electric (GE) more confident about 2011. "That deal was measurably better than I had anticipated," says Mark Zandi, chief economist for Moody's Analytics (MCO). "I feel sentiment shifting. It feels like business is ready to turn the light switch on."

The change in sentiment is all the more striking when compared with the rest of the world. Europe is stuck in its sovereign-debt morass, while China, India, and other emerging countries struggle to cap a rise in inflation. "The new, new, new normal is for the U.S. to be looking in pretty good shape," says Jim O'Neill, the London-based chairman of Goldman Sachs Asset Management. It's "raising issues about the whole allocation of capital between so-called emerging markets and the U.S.," says O'Neill, who popularized investing in emerging markets by coining the BRIC moniker for Brazil, Russia, India, and China.

The Standard & Poor's 500-stock index of U.S. stocks was up 12.8 percent for the year as of Dec. 28, vs. declines in emerging markets such as China and Brazil. It also exceeded the gains in the MSCI World Index, which tracks developed-nation equities. U.S. chief executives polled in the fourth quarter by the Business Roundtable were the most optimistic they've been in almost five years. Jeffrey R. Immelt, chief executive officer of GE, called President Barack Obama's tax cut and his Dec. 15 meeting with corporate leaders "real positives." Executives were pleasantly surprised that the budget deal included a temporary decrease in payroll taxes and a tax break for business investment.

Sadly, Democrats failed to pass the most important legislation they considered, the DREAM Act.

Posted by Orrin Judd at December 30, 2010 6:33 AM
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