The first anniversary of the credit crunch failed to offer any sign that the conditions sending agonies through the world’s financial system are about to improve. When the crunch first struck, some dismissed it as little more than a temporary blip, focused largely on an overheated US property market. Few anticipated last autumn the reach and the severity of the problems that we are currently experiencing.
Now inextricably entangled with the effects of the financial markets freeze, volatile commodity prices and the spectre of resurgent inflation have compounded the effect. While there is little dispute about the immediate problems both in the financial and the real economy there is no consensus about how long and how severe the downturn will be.
While some are suggesting that normal service could be resumed within a relatively short time frame, the real doom-mongers are making comparisons with some of the most turbulent economic periods of the past 100 years.
The challenge for treasurers and for their companies peering out through the economic gloom is not to be too influenced by the constant drip-feed of bad news. As companies contemplate their future actions – acquisition, investment, expansion, job creation – they need to focus on the fundamentals of their business and their sector. This may seem obvious but it is easy to slip into a herd mentality, especially when all around appear to be gripped by panic.
In recent years treasurers have spent much of their time working with others on risk management, ensuring that a range of potential threats are understood and strategies in place to deal with them. The risks may have become greater and the unknowns more numerous but the basic premise remains: treasurers and others have to ensure that their companies are in shape to deal with more volatile conditions. An example of how changed circumstances are demanding changed thinking is the growing interest in asset-based lending as a way of raising capital (see Using Your Assets on page 22). It would be foolish to suggest that companies can still steam ahead in choppier economic waters but it would be a bad mistake if their confidence in the future of their markets eroded so badly that they all but shut up shop.
Caution is clearly required. While treasurers need to be alert to the real extent of the downside, they must refuse to allow their business to fall into an unnecessary slough of despond that diminishes the chances of emerging unscathed. As businesses return from the summer break, it is a time for cool heads to rule.
Peter Williams
Editor