The Panic of 2008

It’s been called a tectonic shift in the global economic environment, with aftershocks to be felt for some time to come.

First, investment bank Lehman Brothers , a firm founded in 1850 and which survived the Great Depression, two world wars and every market upheaval before and since, went belly-up over the weekend. Then rival Merrill Lynch was sold to Bank of America for a fraction of its value of just a few months ago.

American International Group (AIG), one of the world’s largest insurers, was effectively bought by the U.S. Federal Reserve for a bailout amounting to US$ 85 billion to forestall its impending bankruptcy. AIG is the mother company of the local Philippine American Life Insurance Company (Philamlife). It’s often been said that when the U.S. sneezes, the Philippines catches a cold. Well, when the U.S. gets a cold, we get pneumonia. Continue reading “The Panic of 2008”

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Oil Price Shocks and Other Midyear Prognostications

Here are my forecasts for the next half of 2008, and I feel gloomy just thinking about most of them.

1. More Oil Price Increases — a worldwide trend with no let-up in sight. I get a fever every time I go to the gas station. Unleaded is now P60.00 plus per liter at the pump and rising weekly. Crude hit a new record high of U.S.$ 143/barrel and keeps climbing. It will get worse in the last quarter as winter approaches. I fear we will hit the nightmare scenario of U.S. $ 200.00/barrel sooner than predicted.

2. Food prices and other basic commodities will increase – a no- brainer. The effect of rising energy costs, combined with other factors like increased demand and diminished production, will drive up the inflation rate, which in Metro Manila has reached double digits. Expectedly, food will exhibit the steepest price increase. The negative impact on overall income due to inflation will naturally lead to a drop in personal consumption. Which will in turn slow down the economy etc., etc. ad nauseum. Continue reading “Oil Price Shocks and Other Midyear Prognostications”

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Consumption Factor Key to Addressing the Food and Oil Crises

Jared Diamond, professor at U.C.L.A., asks: What’s your consumption factor ?

His question is relevant as the world reels from the oil and food crises, which will get worse before it gets better. The Philippines will surely be one of the hardest hit, as crushing poverty combined with the continually rising prices of basic commodities will result in a potentially explosive social cocktail. President Arroyo, an economist herself, understands this all too well. This must keep her up nights, as it does many of us.

Diamond tells us to consider the number “32”. Continue reading “Consumption Factor Key to Addressing the Food and Oil Crises”

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