December 27th, 2008
04:38 AM GMT
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LONDON, England - Binge ... hangover ... regret ...resolve.

It's the pattern of the holiday season. Eat and drink too much, suffer for it, wish you hadn't overdone it - and then savor the chance of redemption in the shape of New Year's resolutions. You know the drill: something along the lines of "I will never ever touch a drop again" or "I will never eat so much rich food ever again."

It's also, of course, the pattern of the world economy. Grow too much too fast on borrowed money, and things will feel lovely until the awful day the bust comes. Then comes the pain, only partly offset by the usual measures to remedy it.

Think of interest rate cuts as the equivalent of a couple of aspirin or liver salts.

And of course policymakers and investors alike wish they had all spotted it coming sooner and taken action in time.

So what about the economic equivalent of New Year's resolutions? As we enjoy the tail end of the holidays and cross the invisible frontier that divides 2008 from 2009, what can we promise that we will always do in the future, and what will we swear to avoid?

The world's policymakers are already working hard on tighter, more effective regulation. In the new world that awaits us, banks and other financial services players will have their wings clipped to prevent them from soaring again to the heights of excess.

Economists are busily rewriting their textbooks, airbrushing any passages that suggested that the cycle of boom and bust was history. And of course we journalists are insisting that we were taken in by the same irrational exuberance as everyone else and could only tell the truth as we saw it.

So there will soon be new regulations and a new economic orthodoxy to bow down to. Meanwhile, what can we do to hasten recovery and prevent a recurrence of the current slowdown?

The words of U.S. President Franklin Delano Roosevelt's first inaugural address in 1933 have have always had great resonance and wisdom: "The only thing we have to fear is fear itself – nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance."

As investors sit on great piles of cash, as banks refuse to lend money even to the most promising and worthy of ventures, as consumers steer clear of the shops, and as companies slash jobs, the impact of that "nameless, unreasoning, unjustified terror" is plain.

And we can be sure that it will intensify, as 2009 progresses. It's going to be that kind of year. As Germans say, "Augen zu und durch!" ("Shut your eyes and get through it!")

But if abject fear could be replaced not by misplaced optimism but by a rational prudence, what impact would that have? Would a change in psychology make much difference?

As with the question of climate change, if we changed our attitudes and actions together, could we solve the problem?

What do you think? What New Year's resolutions are you making to beat off the economic crisis? And what do you recommend to the rest of us?

Post your questions and comments, and we'll put them to an expert on Friday's edition of Business International. (It's helpful if you also say where you are writing from.)

December 22nd, 2008
01:32 PM GMT
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TOKYO, Japan – As Toyota goes, so does Japan's economy. That's just one of the witty sayings you hear tossed around financial circles in Tokyo. That saying held quite a bit more grit than wit as Toyota announced that for the first time in its modern history, the automaker will post an operating loss for the fiscal year. Not just a small loss, but a major one totaling about $1.7 billion; a stunning turnaround for a company that one year ago posted record profits. In the words of Credit Suisse auto analyst Koji Endo, this is "the worst ever."

He didn't just mean for Toyota, but for the market overall. Toyota is Japan's winner, the one that always sets the standards and breaks the record books, the one company that others measure themselves against. So if Toyota is struggling, smaller and weaker companies around the world are faring even worse.

And as the largest automaker in Japan, Toyota's balance sheets tell the story of Japan's export-driven economy. Japan's government announced a trade deficit for the second month in a row. Global exports dropped by 26 percent and US exports plunged 33 percent. The domestic economy can't recover without global demand increasing, agree analysts.

So yes, the news is history-making and head-turning from Toyota. But it also paints a gloomy picture of how deep Japan's recession will be and how tough it will be to recover.

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December 19th, 2008
06:51 PM GMT
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NEW YORK - As I was walking home from work the other night, I was saddened to see yet another restaurant in my neighborhood closed down.

Sign of the times for Mama.
Sign of the times for Mama.

A typed note was posted on the door.  "Dear Friends and Neighbors, We tried our best, but December 7th will be our last day. Thank you for a great time! With Love, Mama"

The global financial crisis has been unfolding for months now, but the damage to the real economy is more and more visible. And it is more personal.

I felt for the owners when I read the line, "we tried our best." I imagine this was a dream of theirs to open a restaurant. In better economic times they just may have succeeded.

But this is a harsh environment where even big companies are struggling. A few doors down from Mama, a larger clothing chain, puts a sign out everyday offering Big Sales! It is not about profits these days, it is just about survival.

I spend my days trying to explain the complicated issues involved in this global financial crisis, but sometimes an image tells the story best. Right now, when people ask me how the U.S. economy is doing, I think of the shop with a gate across the front and a "for rent" sign in the window.

What are you witnessing?  What is happening in your town or city that is a sign of these economic times? If you can, send us a photos and video along with your post. It may be a sign of just how tough things are...or maybe you are seeing signs of hope or humor.  We want to know.  Send your photos, videos and stories to

December 18th, 2008
06:26 PM GMT
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NEW YORK – Here we go again. A major U.S. company, actually two, are on the verge of collapse. People are concerned about what kind of ripple effect that might have on the broader U.S. economy and yet, the Bush Administration dithers. Well, that might be too strong a word. They are probably crunching numbers, calling in experts and hotly debating what to do over autos. But so far, they are not acting. And the companies are quickly running out of money.

Late Wednesday, Chrysler announced it will shut down production at all plants for a month. GM and Ford have also said they will extend their usual seasonal shut-down. GM and Chrysler made it clear in testimony earlier this month, they can not survive much past the end of the year without a financial lifeline.

The Bush Administration has said a "disorderly bankruptcy" would be harmful to the economy and is not an option. But it feels like we are getting awfully close to that. GM has denied news reports that it is in merger talks with Chrysler, but at this rate it is hard to see how all three carmakers are going to survive this crisis in the current form.

The idea of naming a car czar to oversee the restructuring process also seems to have stalled. The New York Times is reporting that Treasury Secretary Henry Paulson has effectively taken on the role of "auto czar." That's alarming to many who are critical of his handling of the bank bailout.

Our folks report that Speaker of the House Nancy Pelosi wants Paul Volker to take over the role. A former Fed chairman and advisor to President-elect Obama, Volker knows a lot of monetary policy, but few believe he has the corporate experience or turn-around skills needed to make a real difference to the auto industry.

The White House says they are getting close to announcing some kind of plan, but I wonder ... have we passed the point of no return? Is it too late to save all three of these car companies?

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Filed under: BusinessUnited States

December 12th, 2008
07:19 PM GMT
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LONDON, England – In life, there are always decisions you want to keep on putting off. In my case, the one that always stresses me out centers on the heating oil tank in my garden.

 It's no great beauty - a big green plastic job that could probably swallow up two entire bedrooms in one of those Japanese capsule hotels, but which apparently holds 2,500 liters of fuel.In these days of wildly fluctuating crude prices, working out when to fill the wretched thing is a task requiring the greatest wisdom, calculation and foresight.

The seesawing price of oil has given consumers worldwide much to consider during 2008.
The seesawing price of oil has given consumers worldwide much to consider during 2008.

It is not helped by the fact that the local company with which we have a supply agreement employs a high-pressure salesman to answer the phone, quote the latest price per liter and coax customers into buying as many liters as possible.

His strong-arm tactics probably earn him an annual bonus which would not disgrace an oil company mogul.

What he knows is that those of us who use oil to heat and cook in the winter (I know, not desperately environmental, we have no mains gas supply but do have a solar panel and turn the oil off for six months each year) can imagine nothing worse than being stranded with an empty tank just as the extended family descends for the holidays and Jack Frost starts to tighten his wintry grip.

Desperate + gullible = ripped off. Game on, I thought last April. I cheated the man on the phone at the oil company of a few pounds in bonus by refusing to buy a full tank of oil at what I felt to be an inflated price of 51.5 pence per liter (around 65 euro-cents or US$1.03).

Instead I persuaded my skeptical wife to order a mere 500 liters, on the basis that this would be enough to last until nearly the end of the year, by which time (I said, crossing my fingers) crude prices would be way back down again from around $110 a barrel and heating oil would be way cheaper.

Over the summer, I chewed my nails as crude rose majestically to $147 a barrel, taking my wife's eyebrows up with it. I could see that I was going to be saddled with yet another financial clanger, my eternal optimism (see last week's blog) dragging the family budget and my personal credibility down with it.

But then my bet started to pay back. Crude prices slid and slid and slid, all the way down to around $40 a barrel.

I started to dream of a holiday in the sun on the basis of all the money we had saved by holding back on buying oil and waiting for the price to drop; after all, if the price drops 10 euro-cents, that's a saving of €250 on a full tank. If you go away to somewhere sunny, you're not even consuming any oil!

Then, out of the blue, my wife rang me at work. The oil in the tank was getting dangerously low and would only last another week.

It might run out just as... well, this is nearly the week before the holidays and you can guess the rest.

But luckily, she told me, she had spoken to the man at the oil supply company and he would fill our tank for 37.5 pence a liter. I sighed.

The connection between crude prices and the price of heating oil to consumer dorks like me is actually more tenuous and delayed than you'd think.

Even so, I valiantly weighed the odds. On the one hand, crude demand is falling, and will probably fall further as the global economy struggles to shake off recession next year.

On the other hand, petroleum prices have been underpinned by OPEC's determination to tighten supply; Saudi Arabia, the "swing producer" in the producer cartel and its biggest player, is already rumored to be cutting the amount of oil it exports.

In the end, the salesman won - more or less. My wife rang around, got a lower quote, called him back and got him to match it.

So next week the truck will roll up, the man will jump out and run out his hose to the green plastic thing, turn a switch - and we'll be warm and cosy over the holidays.

We'll also be £900, or $1,340, poorer off. So were we robbed? Should I have held on, maybe bought another 500 liters (at a slightly higher price; the salesman knows his job)? Or was I right to get my personal big oil deal out of the way before OPEC tightens demand? What do you think? How have changing oil prices had an impact on your life? Post your questions and comments below, and we'll put them to an expert on Friday's edition of Business International. (It's helpful if you also say where you are writing from.)  And here are some answers from Philip Sellwood, chief executive of the Energy Saving Trust 

December 11th, 2008
11:42 AM GMT
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LONDON, England - What do you if you're dealing with potentially the worst downturn in the post-war period, and the biggest financial crisis since the Great Depression?

What do you do if your job is to kick-start the world's biggest economy, but your normal tool - cutting official interest rates - isn't enough and you're fast approaching zero interest rates?

What you do is you go to unconventional means, you do what's called quantitative easing. And that's exactly what the U.S. Federal Reserve is doing.

The Fed is firefighting with several emergency programs aimed at easing the credit crisis. They include a commitment to buy $600 billion of debt tied to the housing market, and $200 billion to support business and consumer loans.

But the Fed can throw as much money at the problem as it needs, and has already more than doubled its balance sheet to $2.1 trillion. And that figure could soon rise to nearly $4 trillion, according to analysts.

Fed chairman Ben Bernanke has even been called "Helicopter Ben" after he gave a speech in 2002. In that speech he referred to the economist Milton Friedman who suggested once interest rates have been cut to zero, radical steps may be needed to infuse the economy with cash, and dropping money from a helicopter may be as good as any other method.

The Bank of Japan is the only major central bank in recent times to rely on quantitative easing. It used it to try and fight the economic malaise and deflation that plagued the economy in the 1990s - its so-called lost decade.

When consumers expect deflation they may hold off on making purchases, expecting they will be cheaper in the future, and that in turn only prolongs a recession.

The Fed, knowing what happened in Japan, is trying to make sure the United States doesn't have a similar fate. It has reacted much quicker.

It's still unclear if its strategy will ultimately work. And there are downside risks; all that extra money in the system could at some point lead to a resurgence of inflation.

That in turn could make foreigners less willing to invest in U.S. securities, which would lead to higher interest rates and a weaker dollar. There are also potential consequences for the budget deficit.

But for now, Bernanke and company at the Fed are not thinking about what happens down the road. Instead, they are focused on getting the U.S. economy back on track, and are willing to do whatever it takes to try and make that happen.

Do you think the Fed is taking the right course of action? Do you agree it could be storing up problems for later? I'm keen to hear your thoughts.

December 9th, 2008
08:27 PM GMT
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I did an interview this week with a CNN regular, Sam Stovall, who said one of the main problems facing the markets and economy is a loss of confidence.

All smiles from Merrill Lynch CEO John Thain after the firm was taken over by Bank of America.
All smiles from Merrill Lynch CEO John Thain after the firm was taken over by Bank of America.

Investors can't make sense of the markets which swing wildly from day to day. Workers don't feel secure in their jobs. Families aren't sure how they are going to find the money for healthcare and education. There is a sense the system isn't working.

And yet, in the corner offices of corporations, it seems to be business as usual.

Auto executives are trying to hang on to their jobs and in some cases, multi-million dollar salaries, even as they beg for an 11th hour taxpayer lifeline.

Monday, John Thain, CEO of Merrill Lynch, gave up attempts to get a $10 million 2008 bonus, but only after unflattering media attention.

Tuesday Fannie Mae and Freddie Mac executives appeared in front of Congress and defended both their actions and payouts, despite the fact that the near collapse of both mortgage giants almost wiped out the U.S. housing market.

Another testy hearing that turned into little more than a public blame game.

It is no wonder why people have lost confidence and lost faith.

Where are all the good CEO's? Bosses who put their companies and their employees first.

Surely, there are hard working talented executives out there who can be held up as an example of what real corporate leadership is. Not the sorry symbols of greed and corruption that are in the spotlight now.

Do you know someone who fits the bill? A boss or a manager who is finding creative ways to survive and even thrive in these tough times? Write in and tell us their story. I, for one, could certainly use the inspiration.

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Filed under: BusinessUnited States

December 5th, 2008
07:12 PM GMT
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LONDON, England - This is all getting seriously ugly.  The U.S. labor market shed some 533,000 non-farm jobs in November, and it now turns out that in September - before the collapse of Lehman Brothers and the consequent severe volatility on global stock markets - U.S. unemployment was already starting to surge.

It was just a few days ago that we were told the gurus at the U.S. National Bureau for Economic Research had decided that we could use the word "recession" to describe the economic conditions in the United States. But now, with jobs disappearing fast, confidence in shreds and the "Big Three" carmakers holding out the begging bowls in Washington, the word "depression" is starting to be on everyone's lips.

I admit to being the eternal optimist.  I'm not ashamed to say so - I would actually hate to be thought of as a pessimist - but must also confess that it comes with a big personal price tag: for example, ever hopeful, I hung on in there in the stock market for longer than was wise. Watch Michael O'Sullivan of Credit Suisse discuss Europe's options

So it pains me to write this, but given that this recession has already lasted longer than many of its peers - and is widely forecast to last longer than most of them – perhaps we can no longer rule out a depression, a prolonged and dramatic downturn lasting well into 2010.

It's a scenario nobody wants.  But every government and every central bank in the world is now united in fighting to avoid it

Hours before those U.S. labor market numbers stunned financial markets, Europe was launching a broad-fronted counterattack.  The European Central Bank, the Bank of England and Sweden's Riksbank slashed their key interest rates; in the case of the ECB, the 0.75 percentage point reduction was the biggest cut in its 10-year history.  In Germany, the Bundestag voted through the federal government's $39 billion fiscal stimulus package, just as the French President Nicolas Sarkozy chose the car-making city of Douai to announce a similar package worth $32 billion.

In fact, each day now brings news of European Union leaders and the European Commission working closely together to show they are putting up a united front against the recession.  But what is striking is that nobody says they can stop it in its tracks, whatever they do.  The most they can do, say most economists, is soften the pain of recession and ensure it lasts no longer than it has to.

All this comes at a price.  France's latest effort to boost its economy will probably lift its national debt to 3.9% of GDP, and like all prudent governments, it will have to pay that back out of the taxpayer's pocket once normality has returned.  Virtually every European government will be doing the same: borrowing big-time now, and repaying later.

Central banks also face a dilemma.  They have had no choice but to loosen the monetary floodgates in an effort to induce the commercial banks to start lending again; that is essential if businesses are to invest and employ more people, and if individuals are to restart consumer spending.

But lower interest rates take many months to generate their full impact on the economy, and central bankers worry that growth will snap back, forcing up prices and unleashing inflation.

Imagine trying to drive a car along a highway with steering that only responds, say, 30 seconds after you've turned the wheel.  How long before you dive into the ditch?

So there is an argument which says that governments and central banks might do better to stay on the sidelines and let the recession take its course rather than take expensive and risky measures which are never going to stop it anyway.

What do you think?  Are Europe's governments and central banks doing enough to fight off recession, apart from avoiding policy measures which might make things even worse?  Should they actually bother to do anything?  Are they just making things worse? Watch Michael O'Sullivan from Credit Suisse Asset Management answer your questions

December 3rd, 2008
07:37 PM GMT
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NEW YORK – What a difference a couple of weeks makes. The CEOs of Detroit's big three automakers are once again in DC to plead for a government bailout - but this time they left the private jets at home and drove.

Ford's Alan Mullaly, GM's Rick Wagoner and Chrysler's Bob Nardelli made the nine-hour journey in their companies' hybrid cars.And they aren't stopping there. All three men also say they will now lower their salaries to a dollar each if their companies tap federal aid. It is clear they learned a lesson from the public relations fiasco that surrounded their last trip to Capitol Hill - but have they really changed?

In an effort to try and secure a financial life-line, all three have vowed to shrink their companies. They will be slashing jobs, shedding car lines and shifting production to energy efficient vehicles. At least that is the plan.

And they are not the only ones vowing to change. At a press conference Wednesday the head of the United Auto Workers Ron Gettelfinger said the union will consider making modifications to their existing labor contract. They are allowing the car companies to delay payments to a union-managed health care fund. But the union leader stopped short of re-opening the contract, leaving some speculating the give-backs would be limited.

There are other reasons to be deeply skeptical about this industry's ability to re-invent itself.

The amount of emergency money the companies say they need has gone up. In just two weeks the number has grown from $25 billion to $34 billion.

All these managers have unveiled turnaround plans in recent years - and none have been successful.

The CEOs now say they will cut their pay, but two weeks ago they didn't think that was necessary - even though Mullaly made almost $22 million last year and Wagoner $14.4 million. Nardelli's 2007 salary is not disclosed since Chrysler is now a private company.

Some Republican lawmakers have suggested that the government aid come with the condition that current management step down.

It may be that in the eleventh hour, with collapse looming for both General Motors and Chrysler, these CEOs and union leaders have truly been converted.

You'll get a chance to see yourself Thursday and Friday when they make their case once again for lawmakers and the general public.

But do you think these men can lead the charge to change? Or does the old management guard need to get swept out to give U.S. carmakers a real shot at survival?

Let us know what you think.

December 2nd, 2008
11:35 AM GMT
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LONDON, England - As you contemplate that question, remember that Ryanair is not just a "low-cost" airline or a "no-frills" airline. It is one of Europe's biggest airlines, full stop. It will soon operate a fleet of 195 planes. Most of its competitors have been forced to rebuild their business models to emulate Ryanair, so the line between "budget" airlines and the rest is blurred. Beyond maybe British Airways, Lufthansa and Air France-KLM, the rest of Europe's carriers are dressed up as "normal" carriers but their service is closer to Ryanair or easyJet than they would admit. Aer Lingus is one of them.

Shareholders must decide what kind of airline they want Aer Lingus to be.
Shareholders must decide what kind of airline they want Aer Lingus to be.

Frankly, if you think of Ryanair as one of the few successful carriers and Aer Lingus as a loss-making dinosaur, then I go back to the original question. Does an island of 4 million people need two carriers?

Watch my report on the Irish airlines

Ryanair's Michael O'Leary of course thinks not. That's why he has launched another bid, and this time is half the value of his first offer two years ago. That may be why the Aer Lingus board so quickly rejected the offer. But it's not up to the board. It's up to the shareholders. O'Leary has nearly 30 percent of Aer Lingus shares. The Irish government has around 25 percent. So, Dublin and the regulators in Brussels may not react so quickly, this time. Consolidation is moving apace throughout Europe, finally. The threat to European airlines is too much capacity, not fewer airlines.

BA's Willie Walsh predicted 30 airlines would go out of business this year. This morning, an airline analyst said on the radio the number has hit 25. Yet AirAsia has just announced a long-haul low-cost flight from Kuala Lumpur to Stansted. Stansted is one of Ryanair's main hubs. British Airways is trying to merge with Iberia and tie the two tightly with American Airlines, if the U.S. authorities finally allow that. So, strong airlines appear to be getting stronger. Ryanair and easyJet will face more competition all around. O'Leary says that will work in his favor when it comes to the regulators.

Last week, AirAsia's Tony Fernandes predicted the aviation world will split in two: big international carriers that cater exclusively to those willing to pay to sit in the front of the plane, and all the rest. If he is correct, then Aer Lingus shareholders will have to decide which side of the line the carrier with the shamrock can afford to become.

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Filed under: Business

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