Thursday, December 18, 2008

Eclipse on world economy

We all know about the global crisis that we are going through. It's not only with the giant companies that shut down but it also effect common people. The number of people asking for advice about debt problem is getting increased day by day. It's reported that there is an increase of £228 million to UK debt every day. In addition, one person is declared bankrupt in every 5 minutes. So the trend of spend first, pay later is almost come to an end.

The biggest shock of the year for world market is Lehman Brother going into bankruptcy. It marks the largest bankruptcy in U.S. Alan Greenspan, former US Fed governor say, it was a "once in a century" event and the "worst" he has seen in his career. On September 15, 2008 Lehman Brothers Holdings Inc. filed for chapter 11 bankruptcy protections. Another shock was Merrill Lynch & Co Inc. was sold to Bank of America for $50 billion in an all-stock deal. It was a global financial service firm. Shareholders of both the companies approved the acquisition under the terms that they would receive 0.8595 shares of Bank of America.

In the next month we heard about The New York Federal Reserve lending up to $37.8 billion to American International Groups (AIG). The dealing was like AIG giving fixed-securities to The New York Federal Reserve, that previously lent out to other institutions. They are now demanding their money back. Motorola Inc freezes employee pension plan and said to continue to invest cash in pension plan, but individual pension will not reflect salary increase. It clearly show the result of economic crisis.

Circuit city, the nation’s second-largest consumer electronics retailer was begging for financial protection in federal bankruptcy court. Circuit City file for bankruptcy protection after facing pressure form their vendors. They announce to close 20 percent of their store and cut about 700 more jobs. Morgan Stanley reported a $2.2 billion loss in fourth- quarter. After Lehman Brothers went bankrupt, Merrill Lynch was sold to Bank of America and Bear Stearns was acquired by JPMorgan, Morgan Stanley and Goldman Sachs are the only securities firm in US to survive this year. VeraSun, the biggest ethanol producer in US, has run out of cash and filed for bankruptcy protection.

Deflation became another growing threat for us. Not only the price of consumer good fall, but home prices, stock prices and even people's salaries get lower as well. The problem with deflation is that the manufacturing companies has to cut their production instead of cutting their sale prices and that result jobs losses.

As we are about to welcome 2009, after few days, we hope for a positive change to world economy. International Monetary Fund expect a growth of 2.2 percent for the world economy in 2009.

1 comment:

Oskar schiffer said...

really informative...specially the one on delation..its actually a the situation is just like we are standing in the edge and anytime anyone can fall..good one..