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.)



soundoff (30 Responses)
  1. Noël Howard-Jones

    Who was it that said "You can't spend yourself rich" ? This is exactly what many politicians and pundits are asking us to do today.

    It seems to me that, while it is certainly necessary to loosen up the piles of cash in the banks and private accounts, a further round of private spending to buy ever more things of less and less real utility in the rich nations will only set us up for another, bigger crash later.

    On the other hand, massive mobilisation for investment in the developing world would pay off in a number of ways. It would enable the poorer countries to develop in an eco-friendly way, contribute enormously to lessening the inevitable tensions between rich and poor countries and slow down the flood of economic migrants.

    It would also create markets for the industrial world to produce things that were needed in the third world, rather than useless junk destined to end up in the landfills of the rich countries.

    With real political leadership, a real Marshall plan for the poorer half of humanity could solve the financial crisis and make the world a more contented, healthier, better educated and happier place.

    Noël Howard-Jones

    December 27, 2008 at 6:42 am |
  2. Ralph Hürlimann / Switzerland

    This is not really a new years resolution but something me grandparents as well a my parents allwas adviced me to do: spend only as much as you have less 10% for bad times. And they where not studied economists.

    December 27, 2008 at 8:18 am |
  3. Gastone Ciucci Neri

    To get out of the actual crisis the US government should not interfere with the market forces and companies that are unprofitable should go belly up . The US consumers should learn to save money and not to live above their means as they have done for the last twenty years.
    Interest rates should go up in order to persuade people to save money.
    Interest rates at zero is inviting consumers to add even more debts to the existing ones and discourage them to save money.
    The US government should not temper with the private sector of the economy in becoming a banker , an auto maker , an insurer , etc , etc.
    It should instead to prop up the economy on doing what a government is supposed to do , to invest trillions of dollars in overhauling the infrastructure system of the US and at the same time giving to the millions of an unemployed a monthly salary of at least USD 2.000 for a period of three years.
    To mitigate the foreclosures the US government should help financially the home owners that have difficulties to repay their mortgages.
    In this way it will also help the house market prices to reach finally a bottom .Bailing out every thing as the US government does at the moment it throws only good money against bad.

    December 27, 2008 at 9:32 am |
  4. Odd Arne Jakobsen

    CNN

    My New Year’s resolution: to spend only that money that I actually own or can afford to borrow, i.e. pay back regularly from my monthly income and still eat and sleep.

    My questions:
    1) How can one seriously encourage individuals who spent more money than they had, to continue to do so? It is my impression that that is what Western retail industry now is hoping for.
    2) How can one best encourage the governments of emerging markets / nations to spend on their own citizens rather than hoarding their money, and how can one best encourage those governments to encourage their own citizens to spend money on themselves?

    Odd Arne Jakobsen
    Norway, p.t. Brazil

    December 27, 2008 at 10:32 am |
  5. Michael C. McHugh

    As a historian, my only hope is that bankers, economists and assorted capitalist types would read more history books. There's no need to get a PhD in the subject, but anyone who even read an introductory history textbook would have known that big crashes and consolidations always follow long free market periods in capitalism, not only in 1929, but in the "panics" of 1893 and 1873. (In fact, some people call the whole period from the 1870s to the 1890s the "Long Depression", while others just call it the First Gilded Age.)

    Anyway, universities and business schools should put a little more emphasis on history, and should probably make economic history a required course. Then no one would ever make the mistake of imagining free market Gold Rushes that never end and stock markets that never collapse. Everything that's happening now has happened before in history, and not to know that is a huge failure in the basic education everyone should have, just like readin', writin' and 'rithmetic.

    December 27, 2008 at 10:56 am |
  6. David Martin

    The taxpayer is being stuck for trillions of bad loans and derivatives by the banks.
    They owe to much to survive, but can take down the system.
    Since they cannot lend they are redundant, and should be allowed to fail and the derivatives unwind.
    The taxpayers role should be to guarantee deposits, and set up alternative financing bypassing the banks.
    We are being stuffed by grifters – and Obama has the same guys as those who created the mess.

    December 27, 2008 at 11:36 am |
  7. Lok Sang Ho

    If the source of fear is not removed, the fear will hang in there, and will continue to emit its destructive force on the economy.

    That source is of course the slipping housing market. Before the housing market stabilizes, balance sheets will continue to deteriorate, and credit will remain tight. Consumers' wallets will remain tight. Foreclosures will continue, making recovery more remote.

    That is why I recommend that the Federal Government offer a "buy back" program to existing homeowners. The buy back price is the market price as of, say, December 2008. To contain the cost the offer is made only to homes below the median price in each regional market.

    This price floor will stop the hemorrhage and will pave the way for a recovery. If the offer is credible, such as when the Federal Reserve stands behind the offer, home buyers will reappear and sellers may well withhgold their units from the market. With confidence regained, further bailouts will not be needed.

    If home prices continue to decline, I just cannot see how fear can go away.

    (I am a professor of economics at Lingnan University HK. I hold a PhD from the University of Toronto.)

    December 27, 2008 at 12:15 pm |
  8. John Telders

    Dear Mr.Hodson,

    In my humble opinion this crisis is overrated. When my late father was freed by the Americans in 1945 from concentration camp Buchenwald, he returned to the Netherlands to find a devastated country. With the Marshal help from the Americans, Europe was rebuilt in less than five years. All the infrastructures are here during this crisis. Only the banks are short of money which onsets our whole financial system. I am sure we will overcome this financial crisis if everybody reacts sensible. To me it looks we are goiing in the right direction.

    Wishing you and your team a healthy 2009.

    Kind regards,

    John Telders

    December 27, 2008 at 1:19 pm |
  9. mark luikart

    As a small businessman of 26 years i am more aware than ever that as an owner i must protect the company financially too. i it so easy to want the best for employees and to give regular pay increases and add benefits that we often fail to build the cash reserves necessary to weather storms. like individuals, and large companies, small business is guilty of irrational exuberance and has failed to protect the goose that lays the golden eggs. We are fortunate, but everyone must do a better job of reducing debt, spending less than comes in and saving cash for times like these. yes our country like japan depends on our large companies, but small companies are also have a huge impact.

    December 27, 2008 at 4:07 pm |
  10. earle,florida

    OK, I get it ! You wanna/gotta solve todays problem with todays data,period. I'm a firm believer of using empirical knowledge applied to fixed,and variable data such as we get in todays dynamic economy's. Our biggest problem is lack of transparency,which in itself is a "Red Flag", and no police to investigate,but thats for a later date. The data is plentiful,and abundant, and the variables are quite solvable with parameters garnished from mutated similarities from the near past. There's no magic formula or theory! It's quite simple you follow the flow of money to entities integral to the system. You'll find the bottleneck,which will narrow the search to the culprit,which is preventing the flow. But if it's embarrassing ,or even criminal ,in a country like America we'll probably never find out ! You see we've become a country of the priviledged ,and care not for the masses. Our money belongs to the government that's married to the "Priviledged Wealthy". Otherwise ,why hasn't anyone been taken to the task of seeing what the government is doing with the "TARP" money,...?

    December 27, 2008 at 4:27 pm |
  11. Alan

    On the positive side, a recession is slowing down world development & the destruction of natural resources. Perhaps it will cause people & countries to re-evaluate what a sustainable lifestyle goal should be.

    December 27, 2008 at 9:47 pm |
  12. Pete

    Though people's attitudes determine market behaviour I fear no amount of positive thinking and brave words will make a 4 trillion dollar tab go away.

    Reckless spending and a shocking "free-lunch" policy of successive neocon administrations created a colossal amount of debt and someone has to pay up.

    I am not sure there is any easy way out, short of drastic society reorganization like they did back in 1940.

    December 27, 2008 at 10:46 pm |
  13. lauro silva

    the basic cause of the present crisis everyone knows that there has been too much speculation practiced by everyone,mainly by investors and banks. All the money at stake has been applied on papers instead of being invested on production. Only production is able to make a steady development in whichever country of the world. Any development is reached at the expense of people´s labor and unfortunately the working people are being the first ones to pay for the crisis.The real guilty actors for the crisis are and will continue to be at large to create the next.

    December 28, 2008 at 1:21 am |
  14. JACK THOMAS

    Sir.. I believe that while it is not a popular thought in the US... I believe that wall street is lost to the world as the new order emanates in the far east .. china japan & korea are in a new spirit of joining together to form a giant financial cartel.... it needs close watching..
    BUT it must be remembered that in wall street for 10 years it has been open slather with NO regulation...what is my BONUS this year ??
    regards
    jack Thomas.JP
    Sydney Australia

    December 28, 2008 at 1:26 am |
  15. Khaled Akkoub

    Such an under-statement of the current tragedy that engulfs the world economies!!! Still in an attempt to answer the question by a simple yes, one must not forget that it is just plain misconception that value could be created out of thin air; IT IS JUST ANOTHER TERM FOR FRAUD. Let us hope that the world leaders of economy can master the courage to stop one of biggest swindles in the world history – namely the collaboration to continue the support of a fundamentally defunct U.S. Dollar.

    December 28, 2008 at 2:59 am |
  16. Luz Diaz

    Speaking on a personal outlook of what is going on in our economy, basically the key words are: ADJUSTMENT and
    MODERATION – It may sound simple yet it is needed and is is not
    easy at all. We need to realize that the economy has changed a lot and could keep like that.....and we do not know for how long -
    So, we need to spend, buy in a very realistic way –It will take some sacrific0e and I mean people of all walks will see that each
    one needs to study their lifestyles and do away with some things
    that we need to change in order to spend less. This requires a good personal planning, this means, adjustments in all spending: food, clothing, entertainments..etc. With stress that could
    be our burden we need to keep healthy doing exercise, thinking
    positively, and keep well inform from other good sources on what
    is happening and keep-up in faithful hope that things will get better.

    December 28, 2008 at 3:02 am |
  17. Gloria McCray

    If Wells Fargo (and other big financial companies) have been given a second – a ‘bailout’ – why are they so hard on the consumers?

    December 28, 2008 at 5:08 am |
  18. Riza Vale (Ms)

    Hi Charles,

    If it be of the financial crisis..its only a matter of time..we cannot say yes it would recover sooner than all we hoped for..because we do not know or even fully understand the extent of damage it had done..if we knew then by now we would have known how much bail out would be enough isnt it? thereby we can truly estimate how and when the crisis would subside..
    Unlike the Asian financial crisis..it started in Thailand spreading over neighbouring countries which had no real adverse impact worldwide..unlike this one facing us now...it eminated from the USA..on which all currencies are pegged on..it is the whole world that cries..the question is not really when will the crisis subside but who will bail the world out? If so, what is the price we all have to pay? Monetery is one but more worrisome is the exchange of compromises the world leaders would have to take that the rest of the world may not be told..or would we? but when ?

    What will happen..will happen..the crisis will heal..not so much anything to do with our new year's resolutions per se..but it would in no doubt be useful if we do make such changes to help out in whatever way we can to resolve both financial and climate change crisis.

    Is it coincidence or not..that at the peak of a financial world crisis we also see daunting changes if not impeding doom for mankind by global warming? Decades of much and fast growth at the expense of the environment is just asking all of us that its time to pay back..what the world have greedily taken..

    only when we change the structure of our thinking can we truly reverse the the patterns that have led to the events that we now see and are experiencing the crisis of both financial and enviromental. Everything about us is all interconnected...never a straight line but a loop..where we began..there will we be led to stop..

    I'm Riza Vale , from Los Banos, Philippines.

    December 28, 2008 at 10:23 am |
  19. pentti harmaala

    I recommend US to tax gas 1$ /gallon so you get money for Detroit and stop waste of oil. So the price of oil stays low because consumption stays lower. Tax helps keeping the price of oil lower believe or not. You can build new roads and bridges with that money you get from taxes.
    Pentti Harmaala
    Finland

    December 28, 2008 at 7:04 pm |
  20. d. griffith

    I believe the economy is in an out of hell process. The economy is going green. It's just time to clean house. When things get dirty it's time to wash. Washing out crooks, scams, and schemes. Sorry, the good suffer with the bad. When the wash cycle is over, it will bring about love, empathic concern and a better economy. Which will also complement the ecology solutions process.

    December 28, 2008 at 8:22 pm |
  21. john

    To quote WEO 2008:

    “Current projects are expected to add more than enough capacity to meet demand growth and counter declines at existing fields through to 2010. But many more projects will need to be sanctioned (mostly within the next two years) to bridge the gap between the total gross capacity addition of 30 mb/d needed by 2015 and the actual projected addition of 23 mb/d from current projects. If actual capacity additions fall short, spare production capacity would diminish and oil prices would undoubtedly rise.”

    There is no appetite for investment in liquid energy projects now, nor can one realistically expect such an appetite for the next couple of years at least. Governments cannot and will not do anything as a new year resolution.

    So forget climate change. Go on that motoring holiday. Enjoy that trip by plane to visit the relatives. Have fun while it lasts.

    December 29, 2008 at 1:26 am |
  22. J. Rust

    "the love of money is the root of all evil" is a timeless truth. Why have we allowed lawless corporations to dictate their conscienceless values to us? It is time to go to the core of our personal value systems and assess how we have been manipulated by dreams of "getting ahead" and "having it all." We have sacrificed time with loved ones to build a house of cards. This dreamhouse has now fallen, and It is time to create a solid base on which to build.

    December 29, 2008 at 11:28 am |
  23. Matt Stott

    My resolution is to return to traditional home-made food and waste nothing in the kitchen. I live in Spain's Cadiz province, which has a rich history of peasant cooking, like kidneys in sherry sauce and rice dishes made from left-over pieces of fish. While it might sound a tad different to some, it is rich, tasty and nutritious, not to mention cheap. Today I lunched on a local soup made from two day old bread, water, olive oil and garlic and it was delicious.

    December 30, 2008 at 3:10 pm |
  24. Daniel Cullen

    Hi Charles, I run a small online eyewear business in the UK, mainly supplying ready to wear reading glasses. My economic new year's resolution is to consolidate our position within the relevant sector with a possibility for achieving steady growth. Most small to medium sized businesses in my opinion should avoid trying to grow too large too quickly – at least for the next 18 months or so.

    Regarding boom and bust, our Prime Minister, Gordon Brown has repeatedly been asked by David Cameron, the leader of the opposition and potentially the next PM, if he thought it was a mistake to have previously announced the end of a boom and bust economy? The skill with which this question was carefully replied to (I hesitate to use the word avoided) was on a sporting par with the best of Olympians!

    Practically all forecasters and commentators on the BBC have also been taken in by the same irrational exuberance, telling the truth as they saw it. It's very hard therefore for ordinary mortals to argue against anything they hear on radio, tv or read in the papers about the situation. The fear of fear itself quote from F.D. Roosevelt is an excellent one for the current economic climate but this fear seems to be compounded by the media. There are a few of us however who remain upbeat and simply try to not make matters worse by talking them down still further – so come on, please take note!

    Political and economic measures can, and are being taken by respective governments to aid recovery but while certain short term measures can be taken, this is largely going to take time. With the Bank of England cutting its official bank rate to 2% we are beginning to hear reports on this side of the Atlantic that banks are starting to lend again.

    Turning to climate change, governments now realise the importance of this issue and I think the message is getting through to people – you can see this in several ways and not least by the simple task of household waste management with individual properties now sorting their rubbish to a relatively high degree rather than it all being dumped into huge landfill sites. But as the politicians will say, more has to be done.

    What can I recommend for the rest? Well, I recently watched a repeat of the much loved Hill Street Blues, so what better advice could anyone give than those words of Sgt. Phil Esterhaus spoken during roll call each morning "Let's be careful out there"

    December 31, 2008 at 11:27 am |
  25. Marie

    Hey I'm from south africa and my resolution is to appreciate our economy in South africa and life in south africa as it is...We are always complainin that we pay too much for stuff but we don't realise that we have it good..we are not affected by the crisis soo Yippie and happy new year!

    December 31, 2008 at 6:34 pm |
  26. Arup

    My take on the current situation is that, yes, there are serious problems in the big financial systems of the Developed economies, most specifically US and UK as both are most interconnected. On the other hand countries like Philippines, which was hit by the Asian Crisis since 1997 and barely struggling out of it, the financial systems are quite stable, leveraging is limited/within control for business and individuals. They have been sanitized with the test of fire over the last several years, most small to mid size business here operate without expecting bank loans because its near impossible to get one with all the restriction and requirements.

    We all know the global economy is closely intertwined on several levels but not everything is that close either. China manufactures for the world, and US being its main consumer the slowdown will be immediately felt, like we have seen already. It’s like the relation of storefront in US to the manufacturing in China. However not every economy/business all over the world depends that closely on US related financial systems, which are the causes of the problems we hear now on the news. Even with the current crisis the business has to continue in US and global companies connected to them will also continue, albeit may be in a bit slower pace, but if you ask me, it might make things more stable and real for all.

    What I am really worried about is the effect on global business and consumer confidence from the media’s coverage of the current news. Pardon me for feeling like media has been over zealous in reporting the bad news to the point of scaring people to paralysis. This is not good for the economy globally, even those economy not connected closely are slowing down since out of fear people are cutting down on spending and businesses are slowing down on investments. This as some of the economist would say will slow down the ‘money circulation’ in the economy and make the fears some which are untrue become real.

    January 1, 2009 at 3:33 pm |
  27. Nina Gomez

    I haven't got a credit card. I always pay cash. I was just wondering how to spend wisely if a person depends on making purchases using credit cards because that's how a lot of people pay for their purchases and monthly expenses? Since most people use credit cards isn't there a tendency to overspend?

    My New Year's resolution is spend wisely. Out with the wish list and in with the necessities of life!

    January 1, 2009 at 8:32 pm |
  28. Nina Gomez

    Living in Manila, Philippines and continuing with my education – MBA course – I start realizing we are all connected in some way and one day the deepening financial crisis will hit us and we will all wake up to hard times. In the Philippines there are a lot of people employed in call centers, and other companies. So many people have left the country and are professionals or OFWs (overseas foreign workers). What happens when the financial crisis hits them and they come back home? Won't we also be a nation of the unemployed?

    January 1, 2009 at 8:40 pm |
  29. Sam in Spain

    Being a Pensioner and on a fixed income the only thing to concentrate on over the next 18 months!! is Food and Heat. The collapse of the £ does not help and will of course mean that I have less euros. Fortunately I have some savings but then these suffer from double taxation, having already been taxed on these. I now also have to pay tax on any interest received, although this is now negligble. The government will lose income as well as I do but of course they can always increase taxes to offset the loss.

    Maybe , just maybe, the government should ban Credit Cards and only allow Debit cards to control credit which ordinary people should not have had in the first place.

    It would also help pensioners if the government brought forward the link with wages which they have promised to do in 2012 (if they can afford it!!!!!!!!!).

    As for the banks, I wouldn't trust any of them as far as I could throw them so I will have to budget as before and hope that some economists and politicians get "brain transplants"

    January 2, 2009 at 9:22 am |
  30. Peter Iver

    For many years the Americans have enjoyed a strong and probably over-valued $ – the so called strong $ policy. This has enabled them to import at a lower cost than they could manufacture themselves. The consequence has been the hugh current account deficit and decline in the manufacturing sector in the USA. The fall in demand for healthy bank credit from the manufacturing sector has led to banks having to find alternative ways to lend – hence the fancy mortgage lending schemes leading to the housing boom/bubble. The same applies to the UK and both countries will only start to recover when their currencies enable local industries to compete with imports and create new jobs.

    January 2, 2009 at 3:09 pm |

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