“The prospects of a government rescue for the foundering American automakers dwindled Thursday as Democratic Congressional leaders conceded that they would face potentially insurmountable Republican opposition,” reported the NY Times last Friday.
Wow! The entire country is steamed up over the Republicans bailing out a bunch of financial crooks who have paid themselves fortunes in bonuses for destroying America’s pensions. Why do Democrats want to protect Republicans from further ignominy by not giving them the opportunity to vote down a bailout for workers? Quick, someone enroll the Democratic Party in Politics 101.
GM’s divisions in Canada and Germany are asking those governments for help. It will be something if Canada and Germany come through for the American automaker and the American government doesn’t.
Conservative talking heads are saying GM is a “failed business model” unworthy of a $25 billion bailout. These are the same talking heads who favored pouring $700 billion into a failed financial model.
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The head of the FDIC is trying to get $25 billion–a measly 3.5 percent of the $700 billion for the banksters–with which to refinance the mortgages of 2 million of the banksters’ victims, and Bush’s Secretary of the Treasury Paulson says no. Why aren’t the Democrats all over this, too?
Apparently, the Democrats still think they are the minority party or else their aim is to supplant the Republicans as the party of the rich.
Any bailout has its downsides. But if America loses its auto industry, it will lose the suppliers as well and will cease to have a manufacturing sector. For years no-think economists have been writing off America’s manufacturing jobs, while deluding themselves and the public with propaganda about a New Economy based on finance.
A country that doesn’t make anything doesn’t need a financial sector as there is nothing to finance.
The financial crisis has had one good effect. It has cured Democratic economists like Robert Reich and Paul Krugman of their fear of budget deficits. During the Reagan years these two economists saw doom in the “Reagan deficits” despite the fact that OECD data showed that the US at that time had one of the lowest ratios of general government debt to GDP in the industrialized world.
Today Reich and Krugman are unfazed by their recommendations of budget deficits that are many multiples of Reagan’s. Moreover, neither economist has given the slightest thought as to how the massive budget deficit that they recommend can be financed.
Both recommend large public spending programs. Krugman puts a price tag of $600 billion on his program. If it takes $700 billion to save the banks and only $600 billion to save the economy, it sounds like a good deal. But this $600 billion is on top of the $700 billion for the banks, the $200 billion for Fannie Mae and Freddie Mac, and the $85 billion for AIG. These figures add to one trillion five hundred eighty-five billion dollars, a sum that must be added to the budget deficit due to war and recession (or worse).
What we are talking about here is a minimum budget deficit of $2 trillion. The US has never had to finance a deficit of this magnitude. Where is the money coming from?
The US Treasury doesn’t have any money, and neither do Americans, who have lost up to half of their savings and retirement funds and are up to their eyeballs in mortgage and consumer debt. And unemployment is rising.
There are only two sources of financing: foreign creditors and the printing press.
I doubt that foreigners have $2 trillion to lend to the US. Thanks to the toxic US financial instruments, they have their own bailouts to finance and economies to stimulate. Moreover, I doubt that foreigners think the US can service a public debt that suddenly jumps by $2 trillion. At 5 percent interest, the additional debt would add $100 billion to the annual budget deficit. In order to pay interest to creditors, the US would have to borrow more money from them.
Economists and policy-makers are not thinking. This enormous financing need comes not to a well-managed economy that can take the additional debt in its stride. Instead, it comes to an economy so badly managed that there are no reserves.
Massive US trade deficits have been financed by giving up US assets to foreigners, who now own the income flows as well. Budget deficits from 6 years of pointless wars and from unsustainable levels of military spending have helped to flood the world with dollars and to drive down the dollar’s exchange value. Consumers themselves are drowning in debt and can provide no lift to the economy. Millions of the best jobs have been moved offshore, and research, design, and innovation have followed them. Considering America’s dependency on imports, part of any stimulus package that reaches the consumer will bleed off to foreign countries.
Generally, when countries acquire more debt than they can service, they inflate away the debt. If foreign creditors do not save the Obama administration, the Treasury will print bonds and give them to the Federal Reserve, which will issue money.
The inflation will be severe, particularly as Americans will not be able to pay for the imports of manufactured goods from abroad on which they have become dependent. The exchange value of the dollar will decline with the domestic inflation. Once inflation is off and running, the printing press dollars will only have goods made in America to chase after. The real crisis has not yet begun.
Paulson should rethink the automakers’ and FDIC’s proposals. A bank produces nothing but paper. Automakers produce real things that can be sold. Occupied homes are worth more then empty ones.
Paulson’s inability to see this is the logical outcome of Wall Street thinking that highly values deals made over pieces of paper at the expense of the real economy.
November 18th, 2008 at 6:20 am
I say the Feral Government go bankrupt, full Chapter 7 liquidation.
Imagine the burden that would be removed form our collective backs.
November 18th, 2008 at 6:35 am
Michael Moore’s “Roger & Me” is due to make a comeback this holiday season. He should make a sequel called “Tits Up”.
November 18th, 2008 at 6:48 am
why don’t the give it all away gov just split the cyber cash with the american people so we can get repairs done on the cars we now own ??????????
http://www.youtube.com/profile.....iew=videos
goldieshouse.piczo.com
November 18th, 2008 at 7:43 am
Hyper inflation is undoubtedly coming. It’s pathetic that Krugman cannot understand the obvious. The Republicans and Democrats have intended to destroy the dollar, and now it is being done. Krugman only got as far as he did by being another good ole boy, and he’s just riding the Obama band wagon to expand his popularity.
November 18th, 2008 at 9:45 am
We need every American manufacturing job we have. GM is an American icon
we cannot afford to lose. It has always been company s like this that has made
this country strong in spite of them killing the electric car. If we lose our car
manufacturing company s; we lose jobs, export sales, better economy, and
more dependency on slave labor made junk sold to us by car manufacuring
company s owned by the very banks we are currently bailing out.
November 18th, 2008 at 10:54 am
The end of the big three will not mean the end of american automobile manufacture. Toyotas, Nissans, Hondas, BMWs, Mercedes et al will all continue to be made here. The factories owned by the three will be auctioned off to more profitable companies who may build cars there. Since the plants will become more profitable, the workers will have more secure jobs. The thing the democrats are flipping out over is the loss of union support they receive. The reason the republicans draw the line where they do is they get no union support, but they do get corporate support from the financial industry. What should be done is that all unprofitable firms should go into bankruptcy, renegotiate their contracts, continue business if possible, or auction off their assets, repaying their creditors to the greatest extent possible. This by the way is what would happen if you, or I made as many bad financial decisions as corporate america has. Propping up these zombie corporations will simply keep their assets, and customers out of the hands of their more profitable competitors, delaying any economic improvement. We are heading for a multi year depression similar to what has happened in the japanese banking sector, except affecting all the sectors of our economy. The biggest difference is that we are a nation of debtors, whereas the japanese are a nation of creditors. Everyone who has been living paycheck to paycheck is likely to be out on the street long, and for a long time. I guess they wish they had not bought the harley, the boat, the RV and the time share now, oh yeah and the month in Cancun just wasn’t worth it.
November 18th, 2008 at 11:01 am
The male of the species is disappearing…….
http://ca.youtube.com/watch?v=KySYwA0aLLI
November 18th, 2008 at 11:15 am
Vero Possumus: That’s what it says on Obamas new version of the American seal. It means “Yes we can”.
And believe you me, they think they can!
November 18th, 2008 at 11:17 am
Screw these car companies.. another waste of money! Make cheaper/more efficient cars and maybe we’ll think about it the next time you need bailing out. And guess what? Giving those fat fucks money doesn’t insure anyone will keep their jobs.. just that the assholes at the top wont go away empty handed. I’ve already lost my job.. bailing anyone out wont help me. I’m sick of enabling the rich to get richer while the poor get nothing. it’s time this country learns a lesson and the more of us those fuckers put out of work.. the more of there will be at they’re doorstep.. torches in hand.. breaking down your doors and taking the food back that you took out of our families mouths.
November 18th, 2008 at 1:28 pm
If the big 3 all go bankrupt and no cars are made in America, memories will be like the old fish story. Everytime you tell the story the fish keep getting bigger and bigger.
“I remember when the U.S. used to make the best cars in the world”! “Best quality, more power, bigger, more leg room, more power….Hey you already said more power, your getting senile”. (Al Pacino in Donnie Brasco)
American car makers have the technology for vehicles to go 50+ miles per gallon. They regularly make them for sales oversea’s. They refuse to sell them to the American people even when gasoline was nearly 5 dollars per gallon. Because of this fact alone I say no to the bailout.
November 18th, 2008 at 1:44 pm
IF ALL AMERICAN CAR COMPANIES WENT BANKRUPT TODAY……..
TOYOTA AND HONDA OWNERS: We won’t have to worry to much when we need to replace a water pump in 11 years.
Chrysler, Ford and GM OWNERS: Where are we going to buy a water pump when it breaks in 6 months. How can we buy a broken head gasket, our defective brake rotors, or another coil pack when it breaks in a year and a half. And (especially Chrysler) where will we buy the attachment screws when the whole interior of the car is rattling and falling apart?
Get the picture Pilgram?
November 18th, 2008 at 5:38 pm
Actually the big 3 have good engineering, easily as good as the Japanese, however the compamies are micromanged by MBA’s and bean counters. Plus being saddled with lazy UAW types ( i have worked i several big 3 plants) the battle is difficult. Plus GM has been run by a succession of idiots like Roger Smith and few others, I think bankruptcy is just the cure.
If they get bailed out the Feral Goverment will bascically control them to make “socially conscious cars) and all the touchy feely crapola, limit engine power and a ton of other stupidity, where a nice Chapter 11 could help them clear the deadwood, wake up the UAW and probably turn them around into manufacturing that can actually help us start exporting again.
Try to imagine Nancy Pelosi and Barnie Franks on the committee to manage GM? I shudder at the result of that.
November 18th, 2008 at 8:22 pm
You guys continually confuse strong emotion with fact. I have found econtalk.org to be perhaps the most data rich site on issues such as this that I’ve found, and Alex, it might help you hone some of your arguments with facts and data – should you feel that is appropriate.
As far as which car to buy, read consumer reports. If you’ll do, it will become obvious why the ‘american’ car manufacturers (whatever that means) are failing. I drive a made-in-america (sort of) toyoyo and luv it.
November 18th, 2008 at 10:23 pm
Is congress out of there friggen mind,(not) its not the only the loss of 3 million jobs and the huge loss of manufacturing power in this country, The thing people forget is the hundreds of millions of cars that dont have any replacement parts after the big three chapter out into oblivion, but this is part of the plan because, all the big corperations were at Bilderburg, including the big three auto makers and bankers. In order to bring about chaos, and ram rod Americans into a corner, into centralized citys, destroy the ability for us to get around, they must destroy us totaly and completely ruin, America as we know it. It was very obvious that the major banks in the click where protected and paid off for there complicity in the ransacking of American’s or us chump’s, I got news for you fellow dolt’s the auto manufacturs will not go under, The new Obamma empire needs them to make war goods ( a big party planned for Russia) they are going to screw us up with a bogus auto bail out or a drawn out bankruptcy for them, they will close up a lot of factorys, all the jobbers will
go out, but they will come through smelling like a rose, this is to break our backs so we will beg on our knees for the Obamma Change, the change is the compleation of the goals of the North American Union and new Amero Dollar. we will be hungry and weak it wont take much for the N.W.O. to bring your starving ass’s out your holes. The joke is on you. buy a big soup cup, you will need it for the bread lines, floride salt will give plenty of good relaxing flavour to you soup and bread, maybe you will get that goverment cheese if you rat out a freind.
November 19th, 2008 at 12:14 am
MORE MONEY, MORE CARS, MORE BIG COMPANYS,MORE GOVERMENT,MORE LAWS,MORE PROFITS ,MORE,MORE,MORE!!!!!! IT ALL EQUALS THE SAME THING. GREED , POWER AND CONTROL . TAKE AWAY MONEY AND THE CULTURE IT FEEDS AND PEOPLE HAVE TO THINK FOR THEMSELVES.
November 19th, 2008 at 12:37 pm
If only Ron Paul was President, with Dr. Paul Craig Roberts as Sec. of Treasury, well i can dream can’t I?