Osaka-Japan based Panasonic might have just written its own death warrant. In a little-reported decision, the company has decided to reign in investment in its flat-panel TV operations and instead expand its reach into the entry-level television market. Management’s goal is to increase unit sales by 50% within just over a year.

No doubt Panasonic is eyeing the conversion to digital TV (DTV) in the U.S., currently scheduled for February 17 of this year (although the Obama administration is exploring delaying the switchover). This is a potential revenue boon to the company as millions of consumers seek to upgrade their sets, preferring the trusted brand over its generic rivals.

As nice (and necessary) as the goose in revenue will be to Panasonic over the next year or two, I wonder if there have been any internal discussions as to the impact this decision will have on long-term consumer perceptions of the Panasonic brand. An unprecedented wave of television buyers looking for cheap TVs may come to view Panasonic brand as representing just that–cheap TVs. That would hamper the historically venerable brand’s ability to offer high-end anything, and could one day be looked back on as a fatal decision. This is one to watch.

Consumer credit declined in November (the most recent month for which the Fed has numbers) by 3.7%.  It was the second month in a row that debt on things like credit cards and auto loans fell, and when the December numbers come out it will likely prove to be month three. To read most of the business press and listen to Washington pundits, this is a terrible thing.

True, it’s impossible to separate this reduction in debt from declining consumer confidence (at its lowest level in 40 years), dwindling retail sales (down nearly 2% in December), increasing layoffs (nearly two million jobs lost in the last four months of ’08), and the other effects of this negative economic cycle. We’re now in a spiral from which nobody knows when we’ll emerge. But easy money is one of the things that got us into this mess, and while the government is trying to (as someone recently put it) fix a debt problem by borrowing more money, the real world is wisely scaling back.

There’s no doubt that more spending would help relieve some of the worst symptoms of our economic malady. But using debt to spur spending is like trying to climb out of a hole by standing on a shovel–it’s only going to get you in deeper.  Many consumers and corporations have woken up to this alarming fact, as evidenced by the above numbers. The sooner we all do, the better.

Yesterday’s headline from the Wall Street Journal: “Next Crisis for U.S. Banks? Integration“.  Above it on the same page: “Merrill No. 2 Man Is Latest to Quit“. Today’s front page: “Citigroup Takes First Step Toward Breakup“.  Three more points of evidence that, for much too long, executives in the financial sector have had eyes too big for their stomachs.

There is no better (worse?) example of this than Citigroup. Today’s Journal article says that in the days before Citigroup’s government bailout, CEO Vikram Pandit was “reluctant” to spin of some of the organization’s business units, devoted as he was to Citi’s business model. The company’s strategy has been to grow by cobbling together a variety of financial services firms (hmm…see below), then reap the benefits of operational synergies, including the ability to cross-sell a wide spectrum of financial products. But the behemoth became too unweildy to manage, especially when the credit crunch hit. Citigroup’s growth strategy was based on inside-out thinking, always a mistake.

This could merely be another interesting case study of the internal dynamics that can take down even the most sophisticated companies. But then there’s the domino effect Citi’s struggles are having on the global economy–not to mention the $45 billion of your money that the company has slurped down to try and soothe it’s heartburn.

And what of Robert Rubin, a director of Citigroup for the past nine years? He has resigned his post as senior counselor of the company and won’t stand for re-election to its board, saying he wants “to intensify my engagement with public policy.” Perhaps he’s going to bring the wisdom that ran Citigroup for the past decade to Washington.

Now my stomach hurts.

America’s three largest banks have demonstrated a healthy appetite as they help Washington clean up our messy economic table.  J.P. Morgan Chase gulped down both Bear Stearns and Washington Mutual, Wells Fargo swallowed Wachovia, and Bank of America is trying to digest Merrill Lynch & Co. But news reports are suggesting that they each may be in for a period of significant indigestion as they merge very different corporate cultures. Witness Robert McCann, Merrill’s former brokerage head, who announced his departure just four days after the BofA takeover was complete.

The fact that these mergers were made under extraordinary economic circumstances is likely to exacerbate the problem. Our proprietary research among hundreds of corporations shows that the acquisition of a like-minded company pursuing a complimentary strategy can, like a well-balanced meal, contribute to healthy growth.  But more often than not, corporate acquisitions are more like junk food–they taste great but go down hard. Now that the calories have been consumed from these drive-thru mergers, their nutritional value will become apparent.

The strong acquiring the weak may be a net benefit to the economy at large as events play out. But the odds are strong that one or more of these big banks will come to regret their gastric choices.

Borders Group just hired a new CEO and is flirting with bankruptcy. The company is cutting costs like mad, trying to trim its debt, laying off employees and doing virtually everything it can to avoid Chapter 11 and de-listing by the NYSE. Same store sales for the most recent nine-week period were down nearly 15% from the prior year.

Borders has been hit by a threefold punch, including the economic meltdown, fierce competition from Barnes & Noble, Amazon, and dozens of other booksellers, and a changing marketplace in which book buyers are increasingly comfortable with shopping online, an area where Borders has historically lagged. Basically, Borders got caught in the squeeze.

The new CEO, Ron Marshall, is a financial guy, which may be necessary to shepherd the chain through this period of cost cutting. But let’s hope he can think beyond the numbers so that Borders doesn’t become just another Circuit City, suffering a painful and possibly irreversible decline.

In a Wall Street Journal article, the CEO of Hachette Book Group USA recalled a recent conversation with Marshall: “He said he is hell-bent on insuring that Borders is the first choice for the serious book buyer.” Let’s hope that by “serious book buyer” Marshall means a specific type of customer that Borders can serve better than its competitors, not simply people who buy a lot of books. Every bookseller wants them.

Borders must find a way to differentiate its brand from its massive rivals, and the key to doing so is finding a unique customer base it can serve in a distinctive way. At this stage of the company’s struggle everything should be on the table, and a serious strategic review should accompany the cost cutting. But the company doesn’t have a lot of time, and if it’s suffering from the destructive internal dynamics that so often accompany stalled growth, it will be that much tougher.

Today is the day. The first business day of 2009. The beginning of a new year. The day we will all look back on and say…and say what?

Economic prognosticators are predicting that we’re in for a rough year–all year. They may be right, although very few of them saw what was coming in 2008. Personally, I’m convinced the economy is too big and too complex to be predictable. So much of what got us into this mess was psychological, from the “irrational exuberance” that fed the housing bubble (and the tech bubble before it) to the “irrational angst” that perpetuated the mess over the last several months. And my research tells me that the psychological–how what corporate leaders think and feel drives so many of their decisions–is the key.

We may decide to take our medicine, lick our wounds and get on with things as individual corporations and as an economy. Or we may keep trying to put off the inevitable cleansing or live in denial and drag this thing on. If we all do our part, we might be able to right the ship more quickly.

Of the 30 blue chip stocks that comprise the Dow Jones Industrial Average, only two ended the year up. Two. Fast food pioneer McDonald’s was up almost 6% for the year, while discount retailer Walmart gained a whopping 18%. Perhaps the biggest surprise isn’t that these two DJIA companies alone saw their market capitalizations increase last year, but that any did at all.

I’ve been reading a lot about the continued unpredictability of the economy in 2009, and certainly none of us know exactly how things are going to unfold. But the rising fortunes of McDonald’s and Walmart during the worst economy in our lifetimes make the case that some things remain predictable: well-run companies with well-defined brands that offer clear value propositions can still prosper.  As I detail in the book, neither McDonald’s nor Walmart have unblemished records. But they learned from their mistakes and now seem to be sticking to their knitting. Its a good lesson for us all.