The 2008 year ended with one of the biggest economic busts of all time and in the UK under a government that pledged “No more boom and bust”. I think that a government that even thinks like that is flawed from the start. If you look back through history economies always go through cycles of ups and downs and at certain points boom and inevitably then a bust.

The government could have see this coming and the Bank of England should have acted sooner. Admitely the scale of the present problem has taken every one by surprise, but there is no excuse for having an economy in such a bad state so that when the “Bust” happens the government has to borrow to such high levels that it puts the whole country in trouble.

So what else happened of significance in 2008…

America elected it’s first black president in 2008, Barack Obama, and as he takes office in a few days time he has one hell of an economic situation to sort out and a Middle East problem to resolve yet again.

One of the the UK’s oldest high street chains went into receivership, Woolworths which was first set up by Frank W. Woolworth in 1909 so it has just about survived 100 years of trading. Something I only learned recently was that Mr Woolworth paid for the building of the Woolworth Tower in New York, which was the highest building in the world up until 1930. What is even more unusual is that Mr Woolworth paid for this building in “cash” and at a cost of $13.5 million was quite unusual and in todays terms using the Consumer Price Index is worth over $300 million (£208 million), and using the relative share of GDP would be worth near $8 billion (£5 billion).

After the colapse of Sub-prime loans in the US a World banking crisis ensued with governments around the world pledging unpresidented amounts to shore-up the banking system. With the UK government topping the list at $725 billion and in second place the US government setting aside $700 billion, with Germany and France setting aside $360 billion and $250 billion respectfully. Fall-out from this crisis hit the 150-year-old investment bank Lehman Brothers, the fourth largest bank in the US which filed for bankruptcy in September 2008!

Low, low interest rates in 2008…

2008 saw deep cuts in interest rates with the lowest rate ever seen in the USA closing at 0.25% leaving the US treasury not much more room for movement in a difficult economic environment. The UK also saw the lowest interest rates it has seen for 57 years falling to 2% in December 2008, with the Bank of England commenting that these rates could fall lower still.

Stock markets in a turmoil…

World stock markets saw both huge losses and huge gains during 2008 ending the year at 4,434 in the UK with the FTSE 100 and in the US at 8,776 on the Dow Jones. In October 2008, just after Wall Street saw the worst week in the stock market’s history, the Dow Jones rose by a record 11% or 936 points on the day, which was the biggest one-day gain seen by the index since it began. Also, the UK’s FTSE 100 jumped by 9.84%, which is the highest jump it has seen in its history in November 2008.

Oil price volatility…

The price per barrel of oil has seen an all-time high of $147 per barrel in 2008 and has dipped to below $40 to the end of December 2008 and closed the year at $44.60, only rising slightly as a result of the unrest and fighting in the Middle East. There were predictions of the price per barrel falling to $25 and if Israel and Hamas can agree their differences in the short-term the price per barrel could quite easily fall to below $40 per barrel again soon.

End of the week saw:
Stock exchanges:
FTSE 100: 4,434
DOW: 8,776
S&P: 903.25
Nikkei: 8,860

Currencies
UK Sterling £ to US Dollar $ 1.44950
UK Sterling £ to Euro € 1.03739
UK Sterling £ to Japanese Yen 131.846
UK Sterling £ to Aus $ 2.05640
US Dollar $ to Euro € 0.715690
US Dollar $ to Japanese Yen 90.9783

Commodities
Nymex Crude oil – $44.60
Gold – $884.30

US shares have risen strongly as markets welcomed fresh government moves to end the recent financial turmoil.

The US government said it would quickly implement its financial rescue plan, and summoned bank bosses to a meeting to work out the details.

Wall Street’s main Dow Jones index soared nearly 8% in afternoon trading – after earlier gains in Europe and Asia.

The increases came after fresh moves by European governments to inject more public funds into banks.

In Washington President George W Bush said he was confident that the challenges which faced governments trying to curb the market turmoil could be overcome.

“We can work our way through these challenges and America will continue to work closely with the other nations to co-ordinate our response to this global financial crisis,” he said.

On Monday US Treasury and Federal Reserve Bank officials were due to meet with the chief executives of some of America’s biggest banks, to work out details of the US government’s $700bn (£400bn) bail-out package.

The US is also getting ready to follow in Europe’s footsteps and purchase stakes in financial institutions.

“We are designing a standardised programme to purchase equity in a broad array of financial institutions,” said Neel Kashkari, the treasury official in charge of the bail-out plan.

European governments have said they are putting up to 1.7 trillion euros ($2.3 trillion; £1.3 trillion) to protect the continent’s banks through guarantees and other emergency measures.

The sums are a maximum, and might not all be spent if the financial crisis eases.

So far Germany has approved a bank rescue plan worth up to 500bn euros, France will spend about 350bn euros, the Netherlands has pledged 200bn euros, Spain 100bn euros, and Austria 85bn euros.

Italy said it would spend as much as was needed, without giving any exact figures.

The bulk of the European money will be used to guarantee lending between banks – part of a plan agreed this weekend by the 15 nations that use the euro.

The cash will also be used to take stakes in ailing banks.

UK bank move

In other key developments on Monday:

– The UK government said it would inject up to £36bn of taxpayers cash into Royal Bank of Scotland, Lloyds TSB and HBOS
– The news lifted UK shares, with the main FTSE 100 index advancing 325 points or 8.2% to 4,256
– However, shares in the three UK banks affected end down heavily, with HBOS losing 27%, Lloyds TSB falling 14% and Royal Bank of Scotland slipping 8.3%
– Germany’s Dax index added 518 points, or 11% to 5,062, while France’s Cac 40 climbed 355 points, or 11% to 3,531
– Some central banks said they would offer financial institutions an unlimited amount of short-term dollar loans to help stem the crisis
– The Icelandic stock exchange said share trading would remain suspended until Tuesday due to continuing “unusual market conditions”

Momentous day

“Today marks another momentous day in both UK and global financial history,” said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.

“It seems Mr Brown and Co. have no choice in this matter and these takeovers are necessary, but its very wrong that it is the tax payer that should have to do this” Anthony Halpin, Aberdeen

Send us your comments”The hope in the markets is that political leaders have finally ‘grasped the nettle’, with substantial and coherent rescue plans now being formulated and rolled into place.”

The cash injection moves by Germany, France and Spain follow after talks between all 15 eurozone countries in Paris on Sunday.

The two-fold plan involves guaranteeing lending between banks and taking stakes in financial institutions – similar to the bank rescue in the UK announced last week.

News reported by The BBC

This week has seen more turmoil on the financial markets and stress in the banking sector on both sides of the Atlantic!

Whilst the US government is battling to win over Congress to pass the $700 billion bank bail-out the UK Government is nationalising banks on this side of the Atlantic. Just this weekend a deal has been thrashed out with the Bradford & Bingley and the UK Government to secure its future. Whilst over in the US the biggest bank so far, The Washington Mutual to fail and be taken over by regulators as a result of the sub-prime lending fiasco!

With many economies moving closer or into recession, like The Republic of Ireland is now officially in recession and we have Japan now with a trade deficit!

In the UK the economy needs lower interest rates, but this is looking doubtful for HSBC customers where they are looking to raise interest rates due to a shortage of money. However, the World banks are putting yet more money into the banking sector, with the Bank of England lending an extra £30 Billion.

The problems are being reflected in the retail sector with Marks & spencer seeing a turn in their fortunes for the first time in a while and JJB sports has posted a £9.7 million loss for the first six months of the year – “blaming the “worst retail recession” it has ever known”. With the business Ted Baker also in problems and at a point of calling in receivers, the economy is not looking too healthy.

All this is at a time when the present government see it fit to fight amoungst themselves over their leadership, whilst world economies are going into economic meltdown – it is a worry where this is all going to end!

But there is good news for low paid workers! The National minimum wage has been increased by the Government – great for business owers, just what they need when things are tough already – lets add more problems and increased costs.

End of the week saw:
Stock exchanges:
FTSE 100: 5,088
DOW: 11,143
S&P: 1,213
Nikkei: 11,893

Currencies
UK Sterling £ to US Dollar $ 1.83301
UK Sterling £ to Euro € 1.25915
UK Sterling £ to Aus $ 2.20458
US Dollar $ to Euro € 0.68769

Americans must support a massive bail-out of financial markets to ease a “serious financial crisis”, US President George W Bush has said.

The entire economy was in danger, he said in a live TV speech, and failure to act now would cost more later.

He has invited presidential rivals John McCain and Barack Obama to the White House on Thursday to discuss the $700bn (£378bn) rescue package.

The rivals have disagreed on delaying a TV debate over the economic turmoil.

Mr McCain says he is suspending his campaign to help with the crisis, but Mr Obama says voters now need to hear from the candidates more than ever.

The two men will attend a meeting with administration officials and congressional representatives on Thursday morning in the US capital in a bid to broker a mutually acceptable bail-out deal.

‘Distressing scenario’

Mr Bush made his comments in an evening address to the nation.

Major sectors of America’s financial system were at risk of shutting down, he said, and without action a “distressing scenario” would unfold.

George Bush warned that major sections of the financial system were at risk

His administration is calling on Congress to approve a costly bail-out – under which the Treasury would use public money to buy bad debt from troubled financial institutions – as soon as possible.

But lawmakers from both the Democratic and Republican parties have voiced doubts about the plan and the speed at which they are being asked to approve it.

They want assurances that it will benefit ordinary American home-owners as well as Wall Street, and be subject to adequate oversight.

Mr Bush said he understood the frustration of “responsible Americans” who “are reluctant to pay the costs of excesses on Wall Street”.

“But given the situation we’re facing, not passing a bill now will cost these Americans much more later,” he said, calling for a bipartisan commission to oversee the plan.

‘Rise above politics’

Both of the candidates in November’s presidential election have been speaking out on the issue.

“Given the situation we’re facing, not passing a bill now will cost these Americans much more later” US President George W Bush

Dire warnings from US leader

Mr McCain said he was suspending his campaign to return to Washington to help agree a deal, saying he feared the rescue package would not pass “as it currently stands”.

He also called for his first presidential debate with Mr Obama on Friday to be suspended – something Mr Obama did not support.

Americans needed to “hear from the person who in approximately 40 days will be responsible for dealing with this mess”, Mr Obama told journalists.

The two men did, however, call for a bipartisan approach on the bail-out.

“This is a time to rise above politics for the good of the country,” they said in a joint statement late on Wednesday.

News reported by The BBC

The enormity of the financial crisis now engulfing Wall Street has led the Bush administration to abandon its free-market principles and announce a $500bn bail-out package to buy up distressed financial assets.

At the same time, to stem growing panic among individual investors, the Treasury also plans to offer guarantees for the $3.2 trillion in money market mutual funds, which many people had treated as cash.

The rescue plan may still face significant political and financial obstacles.

With Congress set to adjourn next week for the election season, time is short to work out the details of the plan and get it passed.

Congressional leaders, including many key Democrats, had already been considering such a rescue plan, and they indicated quick acceptance of the proposals.

On the sidelines, however, there is deep scepticism on both left and right – with conservative Republicans objecting to any more bail-outs, and many Democrats asking why we should help Wall Street rather than the four million people whose homes are being foreclosed, or reprocessed.

And the presidential candidates, who are being left on the sidelines in the negotiations, are also reluctant participants in the process.

Both realise that a sizeable bail-out that commits the Federal government to significant new spending will severely limit their plans – either to cut taxes or to introduce a new health care plan – in the year after the election.

One model being talked about is the Reconstruction Finance Corporation introduced in the 1930s during the Depression. But it should be remembered that in 1933, President-elect Franklin Roosevelt refused to agree a bi-partisan deal with President Hoover to stave off the collapse of the entire US banking system, which shut down completely on the eve of his inauguration.

Who gains and who loses

Among the difficult questions about the rescue plan is how much it will cost the taxpayers, the banks, and the distressed homeowners.

Confidence is fragile on Wall Street

Part of the answer is what price the US government pays for the distressed debt.

If it buys at book value, the banks will have gained and the taxpayer will have taken over the liability.

If, on the other hand, the government buys up the debt at distressed values, the government stands to gain if eventually some of the mortgage debt recovers its value.

And it is not clear how much leverage the US government will get over the banks in return for its investment.

In the 1980s Resolution Trust Company rescue, the government had the power to take over any distressed Savings and Loan bank and close it or sell its assets as necessary. T

his eventually meant that about half of the $400bn rescue package was recovered – but most of the banks closed for good.

It is also unclear how much specific benefits distressed homeowners will get.

The cost to the government could grow if tries to hold off repossessions on the 10% of all US home-owners with mortgages – but getting too tough to make sure everyone pays up could risk making the housing crisis work.

The government already has a plan to grant $300bn in extra mortgage help for households facing foreclosure, but the evidence so far is that the plan (which is scheduled to start on 1 October) was looking still-born, as private sector mortgage holders were resisting taking the 10% loss the government was insisting on.

Long term economic damage

The government hopes that its big new package will restore confidence in the markets and encourage banks to start lending again to individuals and businesses.

Real estate market risk is shifting from the banks to the tax payer

Certainly, the prospect of the credit markets seizing up further could have sent the US economy into a tail-spin.

But it is still not clear that the package will be big enough, or implemented quickly enough, to reassure private and commercial investors who are now very worried by the uncertainty over the future of the financial sector.

Tightening of credit for both wholesale and retail borrowers is likely to continue, as markets adjust to the higher risks they perceive.

And while the move might provide temporary relief to the US economy, they also pose some long-term challenges.

The increased borrowing by the government will have to be paid for – and with the growing reluctance of foreigners to hold US debt, it will ultimately mean higher savings, and less spending, for the US economy.

The cost of the rescue could also eventually push up the cost of borrowing as the Federal deficit grows, and thus weaken the long-term prospects for the economy.

And the higher debt could also eventually weaken the dollar, forcing the Fed to intervene to raise rates to prevent a sharp fall.

Although these are big risks, the shattering of confidence is the biggest problem.

And if these measures fail, it will fall to the next president to craft a package to rescue the economy.

By Steve Schifferes
Economics reporter, BBC News, Wall Street, New York – News reported by The BBC

Consumer spending in the US fell by 0.1% in July compared with June, driven down by a large drop in car sales.

Vehicle and parts sales fell 2.4%, their biggest monthly drop since April and down 10.5% on July 2007.

Rising food and fuel prices are squeezing consumer spending and cutting demand for expensive items such as cars, whose running costs have risen.

However, according to the government estimates, retail sales were still 2.6% higher than in July 2007.

Economists said there were signs that tax rebates had encouraged some additional spending.

“In July we saw a rebound in furniture sales and electronics after a drop in June. So the tax rebates may have helped a little, but not every aspect of consumer spending,” said senior economist Gary Thayer, from Wachovia Securities.

The US government sent tax rebate checks for $168bn to most US taxpayers during the month of July to help stimulate the economy.

Mixed picture

The data showed a mixed picture across the retail sector.

Furniture stores, which have suffered from a slowdown in the housing market, rose by 1 percent in July after a 1.2% decline in June.

Department stores enjoyed a 0.3% rise in sales in July, but restaurants and bars suffered a 0.2% fall in sales.

Elsewhere, department store chain Macy’s said its same-store sales fell 2.1% in the three-month period to 2 August.

Its chairman Terry J. Lundgren, said the company “delivered strong second quarter earnings and cash flow, despite the poor economic environment”.

News reported by The BBC

The US government has announced sweeping measures to shore up the nation’s two largest mortgage finance companies Freddie Mac and Fannie Mae.

The plan calls on Congress to expand the companies’ current line of credit and allow the Treasury to buy equity capital in the companies if needed.

Freddie Mac and Fannie Mae guarantee almost half of all US home loans.

Their share prices fell nearly 50% last week amid fears that they might have trouble raising money.

Announcing that new credit lines would be sought from Congress, Treasury Secretary Henry Paulson said: “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies.”

He added that their “support for the housing market is particularly important as we work through the current housing correction”.

The Federal Reserve also said it would lend to Fannie Mae and Freddie Mac if they need additional funds.

The two firms play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.

As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.

Both firms defended their finances, saying they had enough capital to weather the housing slump.

News reported by BBC