Pentonomics – Clouds Hover Over Small Business and Europe

January 11, 2011 at 6:31 PM

The economic news today was light except for the fact that European debt crisis continues to get worse and Small Business Optimism fell yet again.

The Index of Small Business Optimism put out by the NFIB lost 0.6 points in December, dropping to 92.6, which was the36th month of recessionary levels. Only once in that period did the Index get above 93 (last month) and has been below 90 for 26 months. The NFIB is the voice of small business and has hundreds of thousands of members that are scattered across the country. Keep this in mind the next time you hear that goldilocks is back in the building or that the consumer has rescued the economy. The onerous level of household debt is the reason why final demand is weak.

In a sign that the sovereign debt crisis is far from over, the cost to insure debt of Portugal and Ireland against default with credit-default swaps rose to a record yesterday amid concern that funding challenges may force more euro-region countries to seek bailouts. Ex-German European bond yields are still very high as the European Central Bank steps up its monetization of Portuguese, Greek and Irish government debt. Borrowing more money to solve a debt problem can only be a temporary solution. Europe is figuring this out now and the U.S. will soon have to learn the same lesson.

-Michael Pento