More businesses will fail in 2006, report says

I'm not a market analyst but I do have some common sense when it comes to the global economy. Having said that, I'm not real surprised by this article. I've been saying for quite some time now that there are limits to growth in any economy. At some point potentials buyers have already bought all the widgets they are going to need for a while, even in China, and then the market slows. Now this article blames the hurricanes and the new bankruptcy laws and that's probably true but I would also say it's because the US is feeling stiff competition, and rightly so, from the Middle East, Central Asia and South East Asia. This was only a matter of time.

As a country we should stop thinking about how we're going to elbow the competition out of the way and start thinking more progressively. We need to start embracing bold ideas like the basic income guarantee (BIG). It's the next step in economic evolution. There can only be so many producers of goods and services and then the rest of us just need to go on a permanent vacation.

In the meantime, here's the story:

More businesses will fail in 2006 as global economic growth slows, according to a report released on Tuesday by credit insurer Euler Hermes.

Failures may increase in the U.S. next year for the first time since 2001 as Gulf Coast businesses struggle in the aftermath of Hurricane Katrina, said Euler Hermes, a division of Germany's Allianz AG (AZ: news).

The company's Global Index of Business Failures, which tracks the demise of enterprises in more than 25 countries including the U.S., Japan and China, is expected to rise 1% in 2006, after falling 2% in 2005 and 5% in 2004.

Fewer businesses failed in 2004 as global economic growth reached a record 4%. That rate will likely slow to an estimated 3.2% in 2005 and 2.8% next year, Euler Hermes said.

That slowdown will be chiefly driven by the U.S., which accounts for about a third of the world's economy, and has already begun to feel the effects of this year's hurricanes, the firm added.

"The impact of Katrina has without doubt accelerated the collapse of local businesses and will weaken the financial situation of numerous companies and small businesses," Euler Hermes, said in a statement.

About 40,000 U.S.-based businesses failed in 2001, the year the Internet-investing bubble burst. As the economy slowly recovered, that number dwindled to an annualized 32,400 at the end of the second quarter of 2005, Euler Hermes said.

That favorable trend was brought to an abrupt end not only by the hurricanes in the third quarter, but by new bankruptcy laws that were introduced in the U.S.

"The amendments to the bankruptcy law came into force on Oct. 17, making Chapter 11 conditions weigh more heavily on debtors," Euler Hermes said. "For this reason some businesses (airlines, car equipment manufacturers), starting with the biggest, applied for Chapter 11 protection during the third quarter, just before the change came into force."