Ever wondered why we are so worried about falling prices? And how worrying about them can become part of the problem?
Can a simple sofa lead to bigger problems?
Let me offer my own, real experience: I was going to buy a new sofa this month. I have found the one I like in the color I want
I suddenly realized: Hey, prices are falling. I can make do with my old one until the replacement becomes cheaper, or I will buy it in the January sales, when I might get a bargain.
So this month I haven't bought the sofa. The shop didn't get the sale. The factory didn't get the order.
The same may happen next month, and the month after. Certainly I want a new sofa, but I don't want to find the same chair cheaper in a month or two's time.
Of course, by this time the economy will have worsened and I may be more concerned about saving for even worse times ahead - at this rate, the dratted sofa may not get bought until next summer.
Multiply my decision by everyone else and you see how the economic crises - coupled with falling prices - is disastrous.
Now tell me, what changes in shopping or economc decisions have YOU made that, if multiplied, will have a major effect? What purchases are you putting off? What vacations are you not taking, and what home improvements have you delayed?
Let me know, so we can truly see the size and scale of this problem. Watch Jasmine Birtles of Money Magpie.com answer your questions and comments.
MUMBAI, India – There are few things in India and about India that startle me. I am Indian, I grew up here, and am used to the peculiarities and paradoxes that lurk around every corner.
The 27-story structure towers over Mumbai's slums.
I certainly wasn't expecting a recent assignment – a seemingly straightforward news story on property in Mumbai – to stop me in my tracks.
I didn't have too much time to take in what I was seeing before cops appeared from nowhere and pushed cameraman Sanjiv and myself away.
"No, no shooting allowed here." "Why?" we asked. "No, no, now wait for our supervisor."
Before the supervisor arrived – possibly to take our tape away - we jumped into our waiting car and drove off.
The cops scribbled our car number down. But we had got what we needed - footage of industrialist Mukesh Ambani's private residence being built on Mumbai's prestigious but very average looking Altamount road.
Staring at the 27-floor structure (I believe it's as high as a 60-story building though) I wondered where the two helipads would be. Which floor would be the pool be on? How many cars could the six floors of parking fit? How many staff members would wait on the family of six?
And the cool chamber with fake snow flurries to keep the wife cool in the Mumbai heat – now where would that be? And – is any of this true?
For now, we only have media reports to go by - and they put the cost of this private tower in the sky with all its facilities and fittings, at between $1-2 billion.
As Sanjiv got his shots, I watched laborers on the scaffolding - banging away, building away. Men and women who probably earn a few dollars a day to make someone's billion dollar dream home a reality.
"It's just unfair, unjust," said Dr Uday Mehta, a passionate social worker who is part of Mumbai's Committee for the Right to Housing. "It's just plain ugly."
How can he live like that, asked Mehta, as he walked us through a crowded and filthy shanty town – look at how the rest of Mumbai lives.
Is Mukesh Ambani's decision to spend the money he has earned on a flashy residence wrong, given he lives in a city where 60 percent of the population lives in slums? Or should he be allowed to spend his money, earned from his business empire, however he wants?
Does a man of his stature and his wealth have to think about what others think of him? What do YOU think? Share your thoughts!
NEW YORK - The top executives of General Motors, Ford and Chrysler appeared in front of Congress for the second day in a row Tuesday, to make their case for an emergency government loan.
The three CEOs have said they don't have the cash to operate next year without help and warned that the failure of the industry would have dire consequences for the U.S. economy.
And yet GM CEO Rick Wagoner, Ford CEO Alan Mulally and Chrysler chief Bob Nardelli arrived for these historic hearings on private jets! That's right: The men at the helm of an industry so crippled that it has to ask for taxpayer money to survive flew on private jets. And they wonder why the American public is so angry about these bailouts.
Their choice of transportation dominated Wednesday's hearing. Representative Gary Ackerman, a Democrat from New York said: " ... there is a message here - couldn't you all have downgraded to first class or jet-pooled to get here? It would have at least sent a message that you do get it.
"If you're gonna streamline your companies, where does it start? And it would seem to me as the chief executive officer of those companies you can't set the standard of what that future is going to look like, that you are really going to be competitive, that you are going to trim the fat, that you don't need all the luxuries and bells and whistles ... it causes us to wonder."
CNN contacted each company who said in various ways that the use of private jets had to do with security and safety requirements. The spokespeople claimed that the companies had already made major cutbacks in travel and corporate spending.
The director of GM news relations added: "We are only doing travel that is absolutely critical to the future of the business. We think testifying in front of the Senate and House to try to secure the future of the U.S. auto industry falls into that category."
At best this can be chalked up to a public relations mistake. But I think many will also see this as a symbol of what is wrong with corporate America.
What do you think? Is this a legitimate issue - or are we in the media making too much of it? Should government aid come with requirements that the current management step down? Or should these companies sink or survive on their own?
LONDON, England - In the movie Wall Street, Michael Douglas preaches "greed is good." Well, we know what can happen when greed goes amok.
We're living in the aftermath of the worst financial meltdown since the Great Depression. And it's not over yet, there's more pain to come.
A lot of blame is being pointed at CEOs and bankers who helped sink us into this rat hole, and rightfully so. Now in an act of contrition, the fat cats who have made enough money to last a thousand lifetimes, are foregoing bonuses, saying it's the right thing to do.
Who are they kidding? Of course it's the right thing to do, but to call it an act of altruism would be disingenuous.
They are doing it because they know there is plenty of anger at the mess they have gotten us into and it's their way of trying to placate the public and politicians who have their sights on them. They know more oversight is coming, and they are sensitive to the political winds howling at their backs.
What is clear is the investment banking model as we know it is dead and profits will be harder to come by. Bonuses will be smaller in the future if one is still lucky enough to have a job. And most importantly, the criteria for the bonus model is changing.
UBS, one of the banks hardest hit by the credit crisis, is making important changes to how its top management gets paid. The idea is to put more emphasis on long term performance.
"As of 2009, UBS will introduce a new compensation model. Top management may receive variable cash compensation and variable equity compensation in addition to their fixed pay. A large portion of this variable compensation will be held in reserve and paid out only if the results of UBS warrant it. Otherwise, there will be neither variable cash nor equity compensation. This should bring about a cultural shift in the company. Those who are rewarded will be those who deliver good results over several years without assuming unnecessarily high risk."
In explaining why they adopted a new compensation model, UBS stated that they felt the old model was too aligned with short-term results, without consideration for the quality or sustainability of the bank's performance, and that it did not sufficiently take into account the risks assumed.
UBS predicts their bonus plan will be followed by other banks. "I'm convinced this is essential, and the entire financial services industry will have to adjust its compensation models to the new realities," UBS's chairman was quoted as saying.
It's too late to make those responsible for this current financial mess give back their bonuses. But if the UBS model becomes the industry standard, then there might be more sobriety in banks' risk taking in the future. At the same time, shareholders have to be less focused on short-term profits which also added to the casino mentality.
The acid test will come when times get better again. We can hope lessons will have been learned, making bankers more accountable, with bonuses tied to long-term performance not just illusory short-term gains.
Tell me what you think. How should bonuses be determined?
WASHINGTON D.C. –- It was always going to be tough meeting the expectations at the G20 on Saturday. Talk of Bretton Woods II before the meeting inevitably raised hopes that would be near impossible to fulfil.
The fact that 20 nations, representing 90 percent of the global economy were present, merely gave the cynics cause to say nothing could get done - even President Bush admitted as much in his closing statement. Everyone expected an anodyne declaration giving something to everyone; thus nothing to anyone.
But the 10-page declaration proved us all wrong. It is considered, detailed and, yes, it sets out short and medium term goals for the G20.
Let’s remember the salient points: fiscal and monetary stimulus from those nations who can; immediate reform of accounting rules to conform to a global standard; new regulations for derivative markets and better early warning of crises; reform of the IMF and World Bank adding weight for the developing world; and a college of supervisors for cross-border investment companies.
These are not just platitudes. They mean business. Why? Because from what I can see the world leaders are angry and frustrated. Despite the cynics, most leaders go into politics to do some good. They don’t want to spend billions of dollars bailing out banks which should be building hospitals, roads and making life better for the electorate. They are furious that they’re stuck with the worst financial crisis in decades and they’re going to wreak revenge on those behind it.
However, there is an overriding hypocrisy that I found too much to take.
In defining the causes the declaration says “policy makers, regulators and supervisors in some advanced countries did not adequately appreciate and address the risks.”
Policy makers? Some advanced countries?
Surely not George Bush, who has been president for eight years? Or Gordon Brown who was Britain’s finance minister for over a decade and is now prime minister? Even Nicolas Sarkozy was France’s finance minister in 2005! The list of the complicit runs much deeper once you take into account officials in finance ministries and central banks who are still in office.
This is a breathtaking case of “someone was to blame” for the crash, conveniently forgetting they were the people either at the wheel or reading the map.
All I wanted to hear was one word: just one.
My Question: Did the G20 actually make a difference?
Or alternatively: Have the guilty politicians got away with the biggest financial swindle of our time? Watch The Economist's Philip Coggan answer your questions
WASHINGTON D.C. – You can tell a lot from the wines people drink. Tonight’s wines at the White House for instance, and those at the G20 get-together in Washington. We are facing the first global recession since World War II. Trillions of dollars are being spent bailing out banks. Jobs are disappearing at a distressing speed. Christmas parties are being canceled left and right.
Some might raise an eyebrow at the main wine being offered tonight at the White House dinner of welcome. The Shafer Cabernet Hillside Select 2003 is described as one of the world's most profound Cabernets – and it is not cheap. Costing up to $499 per bottle, this is not a wine for the ordinary palate.
In the spirit of the evening (not harping about the cost), I take the descriptions of tonight’s wines and apply them to the G20 summit.
The summit meetings, like the Landmark Chardonnay "Damaris Reserve" 2006 being served with the first course, will be full of "nuttiness."
The summit will have moments of "sparkling" discussion between the leaders to go with the Chardonnay Rose toast wine, which will lead to "delicately balancing bold" positions with "subtlety." There will be some leaders who will prove themselves to be "extremely versatile."
Finally, like the extremely expensive Cabernet, whatever happens this weekend we can be sure we will be enjoying the results — "lasting up to 25 years." We are guaranteed a "complex, ripe and long finish."
BEIJING, China — The Hu Family now spends evenings at home instead of going out to dine or shop. They are petrified by all the bad news they see on TV– the financial meltdown in the West, the dwindling Chinese exports, the closures of factories, and the workers’ protests. "When I first heard about the financial crisis," says father Hu Bingyi, "I had a feeling that, wow, it's so near me. Will this affect us?"
It is already affecting many Chinese families. "We don't buy many clothes anymore," says Mrs. Hu. "We shop online, and more often we take the bus or subway or ride our bikes." To earn extra cash, she runs a sideline business selling pajamas on line. "We're still a little worried," she says. "We're not sure what the future will be like, so we still prefer to save money in the bank."
Not exactly what the Chinese government wishes. Last weekend, it announced the biggest stimulus package in its history to kick-start the domestic economy, which is now dragged down by the recession in the West and the dwindling demand for Chinese exports. Simply put, Beijing now wants Chinese people to spend and spend so as to tide China through the economic crisis.
The task will not be easy. The Chinese are typically risk-averse and are one of the world's most serious savers. China's national savings rate last year reached 56%, according to estimates by the International Monetary Fund (In comparison: Japan 29%, Europe 22% and U.S. 14%). They squirrel away so much of their disposable income because they are insecure about the future. "The Chinese have never had the kind of safety net that other people around the world have had and it just makes them very cautious and very conservative financially," says Jack Perkowski, author of Managing the Dragon, a book on his experiences as an investor-entrepreneur in China.
China's economy is still growing at a rate of about 9%, but that is down from 11.9% last year. That is relatively strong compared to the bleak economic forecasts in the West, but even a 3% drop in China's annual growth will be too steep for China's comfort because it could spike unemployment and lead to social unrest.
Households like the Hus fear they could lose their jobs or get sick. Because China's social welfare and public health care systems are in tatters, they can no longer count on the government to cover the costs of their children's education and family's medical bills. And with the one-child policy, they can no longer rely on their children for support in old age. In the meantime, they stash away their renminbi under mattresses or put it in low-yielding savings account.
Economists argue that the Chinese save too much and spend too little and it's actually bad for the economy. Beijing officials agree. For the past decade or so, China has been talking of reorienting its growth mode from one based on exports and investments to one driven by consumption - with little success. With China's exports dwindling steeply, they now hope to take up the slack by boosting domestic consumption. "We need to keep savings and consumption at a normal balance and coordinate the relationship with each other," Premier Wen Jiabao said. The $586 billion stimulus package he announced recently is full of incentives for consumer spending. "I still expect the domestic demand will compensate for the loss of jobs in export centers," opines Justin Lin, chief economist of the World Bank. "China will switch to domestic demand and maintain growth rate between 8 to 9 per cent."
But such fairly optimistic forecasts are lost among middle-class families who hear one bad news after another. "We worry that one day we will lose our jobs if our company fails," says Mrs. Hu. "If prices keep going up, we won't have money to save in the bank."
BERLIN, Germany - For a while, the German government thought the international financial crisis wouldn't really affect the country. After all, there was never a real housing bubble here, Germans save money rather then go into debt and, unlike many other western European countries and the United States, Germany still has a huge industrial sector.
But now Germany's economy has officially taken a nose dive into recession - and many Germans are wondering what's hit them.
The answer is simple. When the world's economies decline, the world's largest exporting nation is bound to suffer.
The auto sector, Germany's largest and most competitive industry is already feeling the pain. BMW, Opel, VW, and Mercedes have all announced they will halt production temporarily or have already done so because they can't sell enough cars.
Make no mistake; Germans aren't the most important consumers for German cars, the world is. In fact the average age of cars on German roads has drastically increased over the past five years, showing that German consumers are not buying.
Now that the world seems to have stopped buying as well, the automobile industry is looking at massive layoffs and temp workers are the first to suffer. Many have already had their contracts cancelled.
The same holds true in the German microchip industry, where manufacturers like Infineon and Qimonda have begun to lay off temp workers.
But to understand the full magnitude of what is going on you have to understand the sheer size of the German export economy. In the past four years, Germany has been the leading export nation of the world with a trade surplus larger than China's. Germans can export almost anything.
I was in the forests around Berlin the other day and talked to forest owners and lumberjacks. It turns out they were exporting much of their timber to the U.S. as construction wood and now also have to lay off workers since the American housing bubble has burst.
One forest owner told me how a chartered cargo ship with German wood was on its way to the U.S when the contract was cancelled and the vessel had to turn back. "The crisis hit us very suddenly and very hard," is something I have been hearing a lot.
And of course, even in the case of lumber, there are whole industries connected. Only a short drive outside the forest we found one of the world's largest makers of laminate wood floors and wooden panels. Of course the company was exporting almost their whole production to the U.S. Now they will have to lay off about 10 percent of their workforce.
The story of the German recession is not one of consumers closing their wallets; the wallets of German consumers have been closed for a long time. Rather it's a story of people fearing for their jobs and the threat of mass unemployment.
For a long time German politicians said they didn't think that would happen. Now they have become pretty quiet.
NEW YORK - In September U.S. Treasury Secretary Henry Paulson lobbied Congress for $700 billion to buy up troubled mortgage related assets that were dragging down otherwise stable banks. We were told the very future of the U.S. economy was at stake.
Paulson has now admitted what many had already started to guess – they got it wrong. Treasury is no longer planning to use the money to buy toxic debt. That plan, it turns out, was too complicated and was going to take too long to implement. Instead, the government is going to continue to give money directly to financial institutions in exchange for shares.
Not only that, but you no longer have to be a bank, or turn yourself into one, to qualify for help.
Treasury now wants to open the bailout coffers to companies that issue credit cards, student loans and car loans. Paulson says the aim is to lower the costs and increase credit availability to American consumers.
Some say the fact that Paulson is willing to adjust and change the plan so quickly should be applauded; it shows officials are focused on coming up with the best possible remedy to fix the economy and are not worried about losing face.
Others are outraged at what they see as a lack of transparency and information.
Which companies are tapping the funds and what is it about their business or balance sheet that justifies aid?
What about those so-called toxic assets? What happens to them now? Won't they still be problematic?
There is only $60 billion left from the original tranche approved by Congress. How is the rest going to be spent? How much more will be needed? At Wednesday's press conference Paulson said that he felt the original $700 billion was enough to get the job done, but few analysts think that is realistic.
What about the $1.5 trillion dollars the Fed has lent out above and beyond the original funds? The Fed has declined to comment on where that money has gone or what they took for collateral. In fact, Bloomberg News is suing the Fed to release documents under the Freedom of Information Act.
It may be the Treasury and the Fed are taking a "what you don't know won't hurt you" approach. If the general public knew just how bad it was at some banks or key institutions it could spark a run on those firms and perhaps make a bad situation worse.
But the American public is in no mood for behind close doors operations. There is a severe lack of trust when it comes to government officials and business leaders. Taxpayers want to know just where their money is going. They don't like the fact that the rules of the game seem to be changing.
What do you think? Would more transparency help rebuild trust or would that just spark more panic? How can leaders in both government and the private sector rebuild public trust?
LONDON, England - As the dust settles after an historic U.S. presidential election, the man chosen to be the next Commander in Chief cannot afford to pause and reflect upon the significance of his victory, let alone rest up after the most gruelling and expensive election campaign ever.
What advice would you give to anyone faced with the prospect of losing their job or their home?
The domestic and international goodwill that Barack Obama enjoys today will be short lived.
The millions who voted him into office as an agent for change and the hundreds of millions more around the world who see him as a figure of hope - the man to restore their faith in the United States - face an uncertain economic future.
While Obama doesn't officially take office until January, he will be involved in decisions taken right now, today, particularly concerning the economy and the implementation of the multi-billion-dollar bailout plan.
He faces a daunting burden of responsibility. People have such high hopes, but as recession bites and thousands lose their jobs and possibly even their homes, his "honeymoon" period won't last long.
So, while the president-elect appoints some of the best and brightest of minds to his cabinet and gets to grips with sorting out the mess we're in, we want to draw on the bank of experience that is the CNN audience. You.
Presidents and economic hard times come and go and yet the world keeps turning. Having lived through "downturns" in the past, what advice would you give to anyone faced with the prospect of losing their job or their home?
Many of the people who brought Barack Obama to power were voting for the first time, perhaps too young to have lived through a period of economic gloom such as this.
Just how do you cope with debt and the associated stress? With unemployment and foreclosure?
About Business 360
CNN International's business anchors and correspondents get to grips with the issues affecting world business, and they want your questions and feedback.