Fox Ignores Facts Of Global Economy To Attack Obama Campaign Over Euro-Zone Fears
Research ››› ››› CHELSEA RUDMAN
Fox & Friends claimed that the Obama administration is using the European economic crisis as "an excuse" to explain continued economic struggles in the U.S., saying that Obama campaign adviser David Axelrod is "totally wrong" to be concerned about "what happens in Europe." In fact, economists and experts agree that European recessions and the declining value of the euro are having a large negative impact on the U.S. economy -- as did other global events, like the earthquake in Japan and the Arab Spring.
Fox & Friends Claims Obama Admin. "Us[ing]" European Fiscal Crisis As "An Excuse" For Poor U.S. Economy
Varney: Axelrod Is "Totally Wrong" That "What Happens In Europe" Could Be Affecting U.S. Economy. On the January 17 edition of Fox News' Fox & Friends, co-host Brian Kilmeade began a segment by asking, "Are new economic downgrades in Europe setting the stage for the Obama administration to use that as an excuse for their poor record on the economy?" A clip was then aired showing Obama campaign adviser David Axelrod telling CNN's Candy Crowley that "external factors" such as "what happens in Europe" are concerns of the campaign. Fox Business host Stuart Varney responded by saying Axelrod was "totally wrong" to be concerned about Europe and claimed that Axelrod is "setting up an excuse for the poor economy." From the broadcast:
KILMEADE: Are new economic downgrades in Europe setting the stage for the Obama administration to use that as an excuse for their poor record on the economy?
CROWLEY: Somebody in your campaign told me not that long ago, when I said, what do you most worry about in terms of campaign strategy? Is it Romney? Is it Gingrich? Is it -- and he said, no, it's the economy. Is that still -- hold true?
AXELROD: Well, I think external factors, what happens in Europe, you know, what happens in other places in the world, and frankly, the other thing that worries me are these big super PACs that we see Governor Romney and others benefitting from right now.
ERIC BOLLING (guest host): And Stuart Varney joins us. What do you think of that little interchange between the talk show host and David Axelrod? And is he right?
VARNEY: David Axelrod is setting up an excuse for the poor performance of the U.S. economy as we go into the election. He's saying it's outside factors that lead to high unemployment, a weak economy and a housing crash.
KILMEADE: Is he wrong?
VARNEY: He's totally wrong. He's diverting attention from the failure of the president's policies on energy, on stimulus, on government spending, on the housing market. The president has failed in those areas. David Axelrod is trying to dress it up and excuse that failure by pointing to so-called outside factors.
GRETCHEN CARLSON (co-host): All right. They just go back into the bag and bring out another thing to use.
VARNEY: Yeah. Give you three months, we'll find something else to blame. [Fox News, Fox & Friends, 1/17/12]
Varney Also Complained Obama Administration Blamed "The [Japanese] Tsunami" And "The Arab Spring." Also during the January 17 broadcast, Varney complained that the Obama administration "divert[ed] attention from ... a failed economic policy" by blaming "the tsunami" in Japan and "the Arab Spring." From Fox & Friends:
CARLSON: Well, this isn't the first time that they've done this.
VARNEY: No, it wasn't. Last year it was the tsunami and before that, it was the Arab Spring. Now, it's Europe. It diverts attention from what has been, in my opinion, a failed economic policy. [Fox News, Fox & Friends, 1/17/12]
In Fact, Experts Agree The European Crisis Could Have "Grave" Effects On The U.S.
AP: "Europe's Sputtering Growth Is Already Dragging On Some U.S. Companies' Profits And Could Further Slow The U.S. Economy." A November 13, 2011, Associated Press (AP) article stated that the "European Union is the No. 1 U.S. trading partner." The article went on to cite a Wells Fargo estimate that "the U.S. economy will grow 2.1 percent next year, 0.4 percentage point lower because of Europe's slowdown" and also noted that Goldman Sachs has predicted that Europe's "slowdown could shave a full percentage point off U.S. growth." From the article:
The tremors from Europe's financial upheaval have reached U.S. shores, rattling consumers and companies.
The consequences have been limited so far. Yet the United States and Europe are so closely linked that any slowdown across the Atlantic is felt here. U.S. makers of cars, solar panels, drugs, clothes and computer equipment have all reported effects from Europe's turmoil.
Worries that Europe's crisis could worsen and spread are spooking investors and consumers just as the holiday shopping season nears. Some fear U.S. consumers could rein in spending. Europe's sputtering growth is already dragging on some U.S. companies' profits and could further slow the U.S. economy.
The crisis "seems to be coming to a head right at the time the U.S. economy is at its most vulnerable," said Mark Vitner, an economist at Wells Fargo.
The European Union is the No. 1 U.S. trading partner. Nearly $475 billion in goods crossed between the regions in the first nine months of 2011. About 14 percent of revenue for the 500 biggest U.S. companies -- roughly $1.3 trillion -- comes from Europe.
The U.S. economy is especially vulnerable to the European crisis because it's growing so weakly and facing other risks, such as weak hiring, stagnant pay, high energy costs, a wide trade deficit and potentially steep government spending cuts.
"It won't take much to tip us into another recession," said Sung Won Sohn, an economics professor at California State University, Channel Islands. "If Europe gets into any deeper trouble, it will take us and the rest of the world down, too."
Wells Fargo estimates that the U.S. economy will grow 2.1 percent next year, 0.4 percentage point lower because of Europe's slowdown. Goldman Sachs thinks the region's slowdown could shave a full percentage point off U.S. growth.
Even if Europe doesn't fall into a downturn, its turmoil is affecting U.S companies and consumers in several ways:
- Stock-market gyrations unsettle consumers and make them more cautious about spending.
- U.S. companies with big European operations are suffering from lower sales, prices and profits.
- Banks worldwide are cutting lending and hoarding cash to create more cushion for potentially deep losses on their holdings of Greek, Italian and other government debt. U.S. and overseas banks are keeping about $1.57 trillion in reserves at the Federal Reserve -- a jump of nearly $580 billion in the past year.
- Uncertainty about how much damage Europe could cause is making corporations reluctant to spend their piles of cash to hire and invest. [AP, 11/13/11, via MSNBC.com]
Bernanke: "I Don't Think We Would Be Able To Escape The Consequences Of A Blow-Up In Europe." A November 13, 2011, Reuters article about U.S. efforts to "safeguard its financial system from a worsening of Europe's debt crisis" estimated that U.S. financial institutions might have over "$4 trillion" of direct and indirect "bank exposure" to European countries. The article also noted, "A Fed survey last week showed that about half the top U.S. banks had loans to European banks or were extending credit to them. If European banks ran into trouble and were unable to repay their loans, U.S. banks could face sizable losses." From the article:
The United States is ramping up attempts to safeguard its financial system from a worsening of Europe's debt crisis, joining nations in Asia, Latin America and elsewhere in trying to build firewalls.
U.S. policymakers, alarmed by the political upheaval in Italy and Greece, are digging deep into the books of American banks to find out how exposed they might be to euro zone creditors and the plunging value of sovereign debt.
Officials were stung by the implosion of Wall Street firm MF Global, which gambled and lost on European debt, and they are working on contingency plans for a worst-case scenario should another financial firm crumble.
While the Treasury has been at pains to say that direct U.S. bank exposure to European countries now receiving bailout aid -- Greece, Ireland and Portugal -- is moderate, once the debt of Italy and Spain, plus credit default swaps, and U.S. bank indirect exposure through European banks are added, the potential sum could exceed $4 trillion.
"As such, the potential for contagion to the U.S. financial system is not small," the Institute of International Finance, the lobby group for major international banks, said last week.
There is a secondary level of exposure that is potentially more worrying -- through international banks lending to each other. Here the greatest risk stems from Italy and France. International bank claims on Italy total $939 billion, and French banks account for well over one-third of that, BIS data show. French banks also rely heavily on short-term loans from other international banks for their daily operations. If Italian debt slumps even further, causing deeper losses for French banks, international banks could stop lending to France. The losses would ripple through the whole global financial system.
The United States learned the hard way how these indirect financial linkages work when imploding credit default swaps forced it into a $180 billion bailout of insurance giant American International Group (AIG.N) in 2008 to prevent further contagion in the banking sector.
Federal Reserve Chairman Ben Bernanke was frank last week about the risks: "It is not something that we would be insulated from ... I don't think we would be able to escape the consequences of a blow-up in Europe."
A Fed survey last week showed that about half the top U.S. banks had loans to European banks or were extending credit to them. If European banks ran into trouble and were unable to repay their loans, U.S. banks could face sizable losses. [Reuters, 11/13/11]
Wash. Post: "The Ripples" Of Europe's Banking Crisis "Have Spread All The Way To The United States." From a December 9, 2011, Washington Post article:
The ripples have spread all the way to the United States.
"You're seeing banks walking away from real estate commitments here," said a senior U.S. investment banker for real estate who asked for anonymity to protect his business relationships. "It's like a weight loss program. Only the Germans want you to go on a fasting program right now."
Standard & Poor's says it assigned ratings to two U.S. power plant developments that were delayed by several months because the developers were worried about lining up financing given the "choppy" European markets. A U.S. private equity firm says it pulled back from a major U.S. investment at the last moment because the company sells goods to Europe and economic conditions there are so uncertain.
"It was too much exposure to Europe," a person familiar with the deal said on the condition of anonymity to protect business relationships.
That could mean months of slow lending that resembles the dearth of financing that contributed to the recession that hit in the United States in 2008. An economic slowdown in Europe could be grave. Banco Santander reported its first-ever quarterly loss for operations in Portugal, for example, and expects to shrink lending in Spain. A Citigroup report pointed to "a contraction in loans and margins" in the Iberian peninsula. [The Washington Post, 12/9/11]
Wash. Post: Princeton Economist Shin Says European Banks "Could Do A Lot More Damage Than Expected" To The U.S. A December 22, 2011, Washington Post article contained interviews with several leading economists about the "effect of [the] European banking crisis on [the] U.S." While some economists remained optimistic that the effects would be limited, many others were "pessimists," with one predicting that European banks could "do a lot more damage than expected as they pull back" and another estimating that a slowdown in the euro-zone "could shave 1 percentage point off of U.S. economic growth over the next year." From the Post:
As European banks unwind, will the U.S. recovery come undone?
That's what U.S. economists are trying to figure out as European banks, scrambling to strengthen their balance sheets, cut back on lending to American businesses and households.
Princeton University economist Hyun Song Shin said in a recent paper that European banks have played a much bigger role in the U.S. economy than has been generally thought -- and could do a lot more damage than expected as they pull back.
Shin says European banks grew not only by making direct loans to U.S. businesses but also by sucking up vast U.S. money-market deposits and purchasing U.S. mortgage securities. During the previous decade, "European banks may have played a pivotal role in influencing credit conditions in the United States," and that helped fuel the U.S. housing and financial bubble, Shin argued in a recent paper.
But now it could hurt the U.S. recovery as European banks shrink and bolster their capital reserves. "The European crisis of 2011 and the associated deleveraging of the European global banks will have far reaching implications not only for the eurozone, but also for credit supply conditions in the United States and capital flows to the emerging economies," Shin wrote in a paper presented at an International Monetary Fund conference in November and which has been widely read among economists.
The vast extent of those European bank obligations to U.S. institutions, or counter-parties, helps explain U.S. policymakers' anxiety as they watch European leaders try to head off a crisis like the one that followed the Lehman Brothers failure in the United States in 2008.
Goldman Sachs chief economist Jan Hatzius is among the pessimists. He says the slowdown in the euro-zone economy could shave 1 percentage point off of U.S. economic growth over the next year, with about half of that a direct result of a pullback by European banks.
Foreign banks' branches account for about one-fifth of all commerical [sic] and industrial lending in the United States, Hatzius wrote in a recent Goldman Sachs report. While domestic banks are easing lending standards, a recent Federal Reserve study showed that those foreign banks are tightening standards in the United States. Hatzius wrote that "some pullback is indeed visible" already.
Other U.S. economists are more sanguine.
Mark Zandi, chief economist of Moody's Economy.com, said there were signs that some European banks were tightening lending standards in the United States as well as abroad, but he said "the damage might be limited because the U.S. banks are filling the void." [The Washington Post, 12/22/11]
Even The Conservative Heritage Foundation Says European Economic Woes Contribute To "Bad Uncertainty" In U.S.
Heritage Foundation: "The Issue Is Global Financial Interconnectedness ... A Major U.S. Trading Partner Will Be In A Slump, And So U.S. Exports To Europe Will Suffer." From a September 23, 2011, report published by The Heritage Foundation, a conservative think tank:
Five years ago, one might have viewed the European financial crisis, that is, the existential threat to European financial institutions and markets, as mostly a European affaire. To be sure, American financial institutions hold some of this dodgy European debt, as well. There have even been stories that super-safe money market funds have loaded up on scary levels of high-yielding Greek debt. But, on balance, one would have thought a financial contagion in Europe would be stopped at water's edge. Five years ago, the Europeans thought the same thing about the then-rumored U.S. subprime mortgage fiasco about to unfold.
The issue is global financial interconnectedness. This is where matters get murky. No one, including the participants and including the financial regulators, really knows or understands all the connections, or all the weaknesses. We know in great detail, for example, how much foreign debt by country each of our banks own. But for years the Europeans have assured the world their true exposure to sovereign debt risk was limited because they had hedged their positions with credit default swaps (CDS). Note, however, that CDS do not eliminate risk but merely shift it. To whom? No one really knows.
As these events unfold, the essential consequence for the United States economy is a large dose of bad uncertainty. Bad uncertainty is analogous to bad cholesterol. It builds up and creates economic blockages. In the economic sphere, this shows up as decisions delayed or downscaled, decisions that under normal times would produce the actions that produce growth. Europe is clearly adding to the headwinds facing the economy today.
The depth and length of the recession in each country will vary, but none will be immune. Many of these countries suffered poorly performing economies before the crisis. For the United States the implications if not the magnitudes are clear - a major U.S. trading partner will be in a slump, and so U.S. exports to Europe will suffer.
If the U.S. economy were in good shape, a drop in exports would simply be another headwind to be overcome. In 1997, during the Asian economic crisis, the U.S. experienced an event similar in nature if not magnitude, but the U.S. economy was reasonably strong and accelerating and so the headwinds from the Asian crisis were essentially imperceptible in the aggregate.
Unfortunately, rather than strengthening, the U.S. economy today is flat on its back, and facing the very real possibility of yet another recession even without the headwinds of Europe. President Obama's economic policies have failed utterly and completely. Mounting a sustained, robust, job-creating U.S. recovery under the circumstances will prove very difficult. [Heritage Foundation, 9/23/11]
And Last Year, Experts Agreed Tsunami, Arab Spring "Stifled" U.S. "Economic Growth"
Experts Agree "Economic Growth Was Stifled By Temporary Factors" Such As Japanese Earthquake And "Arab Spring." Experts widely agreed that global events such as the March 2011 earthquake in Japan and the Arab Spring had an effect on global economic activity. An August 2011 article on CNN Money noted, "In the first quarter [of 2011], economic growth was stifled by temporary factors, including supply disruptions stemming from the Japan earthquake and a spike in gasoline prices following the Arab Spring political uprisings." [Media Matters, 8/26/11]