Why Debt Matters – Procurement, Currency and Related Risk

Even though I think that Nouriel Roubini, the economist that predicted the US recession, is sometimes all doom and gloom, we should all pay attention to his ideas featured in a recent Bloomberg dispatch describing the dangers of debt default within the EU. If what Roubini suggests occurs, then we could all find ourselves scrambling from currency, credit market and related perspectives. Procurement will be smack in the middle of a European debt meltdown, facing potentially wild currency, commodity and related volatility swings (not to mention having to deal with the re-freezing of the credit markets when it comes to their ability -- and their suppliers' ability -- to access working capital on good terms.

In the above-linked article, Roubini suggests that "sovereign debt from the U.S. to Japan and Greece will lead to higher inflation or government defaults." More specifically, "The bond vigilantes are walking out on Greece, Spain, Portugal, the U.K. and Iceland," and Bloomberg summarizes that "credit-rating cuts on Greece, Portugal and Spain this week are spurring investors' concern that the European deficit crisis is spreading and intensifying pressure on policy makers to widen a bailout package." In Spend Matters' view, procurement organizations should pay close attention to how this situation unfolds in the coming days and weeks. It could very quickly have a dramatic effect on everything from contracting to transfer pricing strategies and approaches, should the Euro either fall or face continued volatility.

In general, I'm a big believer of procurement organizations paying much closer attention to the world economic stage, just as they track supply markets and specific supplier trends and information. Understanding the big picture not only helps you avoid unnecessary surprises -- it can help you plan to take advantage of conditions long before competitors know how to react. For example, if commodity conditions look like they might be headed into a supplier-driven market (or even one where allocations are common place) because of economic, trade or other factors, a month or two of early warning -- or even a few weeks -- can make the difference between assuring supply on favorable terms versus waiting to be dictated to by suppliers. And you won't get this early warning from simply following trade publications and pricing indices -- you'll get it from reading sources of economic and global intelligence, including opinions such as Nouriel Roubini's.

Jason Busch

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