Wednesday, November 12

Hairy business ahead

I am still pondering what kind of "change" the new elections in the US will bring for real.
The Democrats are now talking about a bail-out of the "big three", GM, Chrysler and Ford - in essence rewarding them for their misdemeanors and mismanagement in the past and thereby giving them a green light to continue business as usual. I see no "change" in that.
In utter despair the government throws money here and there, not only for bank and other acquisitions, but now also as droplets to homeowners. Where does that money come from, where is the printing press to keep up with such a demand?
As much as I like Obama and his charismatic personality, I stay a skeptic of the course ahead. There is too much hairy business to wade through, entrenched in sieves above the drain.
Now that the USA per say has become a socialist country, I wonder when the knuckleheads in Washington realize that the present "free market system" has failed. But no, they are hanging onto it as if their lives would be saved on a magic raft, while their actions only prolong the inevitable course of drowning. Maybe that is a human instinct: Let's stay on the course we choose, no matter what happens.
But there is a way to avoid the iceberg and savor this moment of present uncertainty and turn it around to our advantage. People who are looking for "self regulated", decentralized, community orientated businesses, are definitely on the right track.
I happened to be in Detroit when Bush gave his speech To the Union. I also cruised around then, and all I saw was desolation and decay. The image was as vivid as a city seen after a war. The palaces of the "big three" were still there, but they turned into shopping malls on the ground level, cheap jewelery from China, leather belts from Mexico and twirling stands of postcards depicting times long gone. I thought right then, that I was participating involuntary in a SiFi movie.
The answer is not to bail out these aging giants so that their ruthless course will continue. Detroit will not benefit from it either. The unfortunate side effect is, that there will be colossal collateral damage, thousands of people jobless.
But so be it. Maybe we could focus on a brand new economy, one that serves the people of each country and not the top 2% of jerks running the show.


linda said...

hello zee, many thanks for the visit and comment on my blog...thought I would return the favor and say hello....

the task ahead does indeed seem daunting, to say the least!

blessings to you...

Anonymous said...

It is obvious to anyone with a brain that the "same old same old" will no longer be acceptable to the people. But maybe a (Russian type) or (French type) Revolution will be what it takes when all those 1000's of lttle people lose their jobs and start starving in the Streets. History repeats and it repeats the worst of itself.
Expectations are high and delivery level likely to be (realistically) low. Watch this space.

susan said...

Americans would do well to remember that Barack Obama isn't known to be a Liberal. I'm waiting to see what will happen especially considering the fact the money will be gone by Jan 20th..

Seraphine said...

the problem with not bailing out the auto companies is about 4 million jobs will be lost, between the companies themselves, their suppliers and all the new car showrooms, and it'll make the worst case scenario, a depression, very real, especially since the government has already given away a trillion dollars and the banks, in essence, instead of making loans or bailing out homeowners, the banks simply used the money to buy treasuries, and nobody wants to finance the car companies and it's bad and it's scary.
ich bin gut, und dir? ach, dis ist sehr schlecht. vielleichst du kannst ein neues auto kaufen? ich habe gehort, der hummer ist der neues hausen. wir alles mus schlaf neben der autobahn.
owning a home is old-fashioned anyway.

lindsaylobe said...

Okay lets be serious…….Sera is correct, throw in another 4 million out of work auto workers and your headed for 10% unemployment and beyond……..that’s sheer lunacy to sit back and simply let that happen.

So where to from here? ……… what hopefully the rest of the world will also do and introduce some old fashioned Keynesian economic principles by courtesy of John Maynard Keys who favored spending initiatives to be directed towards investment type spending (e.g. on roads, bridges, engineering, new auto plants , hospitals , engineering works etc) which were known to have a multiplier effect. That was based upon his mathematical theory that demonstrated such initial spending in key investment type industries (e. the big ticket type industries which I have described that need a lot of partners) has a multiplier flow on effect, maybe typically 3 to one but varying from industry to industry. In other words as each dollar is spent others quickly join and start to co invest in their business and so on. Hence the investment multiplier as it is known will be far more effective during this severe downturn than the same amount forgone by way of a tax reduction, as the tax reduction will be either saved or simply spent indiscriminately on consumer type items. So forget about taxation or trying to balance the budget in the next 2 years.

This has been the fallacy of Economics in the USA for a very long time; tax cuts have been largely ineffective, except to the extent it one of the lowest taxing nations in the world at the top end.

As much as I am a devotee of balanced budgets and not trying to spend your way into prosperity I nevertheless hopefully I am also is a realist with sufficient understanding of economics to take a pragmatic approach when faced with the reality of something approaching a very long and pronounced deep recession.

The current government debt as percentage of GDP is still well below its immediate post war rate in the 1950’s, so incurring a further deficit of 1.5 to 2trillion is still affordable …...Say within that over the next 2 years with over a trillion in additional investment type spending initiatives on top of the 700 billion bailout already announced. That 700 billion has strings attched in any event and I would think it's at least a 50% likelihood it will be recovered in full down the track.
such measures are bound to put more pressure on the US dollar but with reduced commodity prices and weak demand that should not be problem for inflation and a weak dollar will help the auto industry and other exporters.
You may think I’m joking or mad but I think its even money Obama will do this, if he doesn’t I think you will all suffer. After that it all hard slog but the current cycle of dismal blame game needs to be broken with bold new initiatives. Despite protestations in the past, to reiterate again, having an inspirational leader who can inspire other people is a huge boost to confidence. It’s not Armageddon, far from it, you have a large tax base of income and still same splendid world class assets, not least of which is a highly skilled innovated well educated hardworking workforce and hence you can say you’re a solvent government who can safely borrow in your own currency those amounts I mentioned.

Its not a question of running out of money at all but more a matter of having sufficient audacity to take the bold measures I have mentioned.

Best wishes.

Zee said...

I mostly agree with you and your approach (also read your last few contributions on Lingsaylobes Blog about oil pricing).
There are two issues that are still unclear to me. One is more hypothetical - and it has to do with the 4 million "lost" jobs. Does it automatically mean that these auto workers will never work again, or find an other avenue of work?
The other is about the psyche of the US American population. Society here was trained for decades to make a "quick buck" and drop the notion to invest into the future.
Hence your plan, Lindsay, is probably not going to work, even if it technically would be the right thing to do. The people here would not buy into it; the vision is based on a day to day functionality.
On this note, it is amusing to see the G8 (now G20) meet and Bush giving a warning about inaugurating "protectionism" of national economies, the very thing "he" already set into gear. I am startled.
Since the Swiss constitution was modeled in lieu of the US constitution, I refer frequently to that comparison. But you see, the Swiss (as bourgeois as they are) have always understood one thing: Invest into the infrastructure of the future. In the long run it will help every citizen, rich or poor included.
This mentality does not exist in the US. It is "now or never."
I think the "downfall" of the "empire" (sort of Roman style) will not be the inadequacy of knowledge, but the lack of will to follow through.

lindsaylobe said...

As you’re no doubt aware Auto makers require such huge specific investment in tooling and strategic parts suppliers it’s not simply a matter of being able to restart from a scaled down version arising out of bankruptcy. If GM (Analysis’s value is Nil) went into bankruptcy, you could convert part of the debt into government equity for a nil cost to taxpayers whilst leaving the remaining smaller debt portion capable of being adequately serviced. But you would also need to make a further heavy investment in tooling and plant modification to be able to build sensible efficient smaller cars and trucks in sufficient volumes to make money, although I understand a good start has already been made. In that way most of the workers and their skill basis could be retained. Although it will take several years the investment multipliers will have their desired effect by generating increased and co investment demand with its attendant job creation.

But if you’re talking about workers losing their livelihood in that industry, naturally enough they can seek employment or retrain for another but that is of cold comfort in an economy which is contracting, with all other industries laying off workers at the same time. In such an environment most will remain unemployed and history also teaches us that even in resilient times older workers laid off with specific manufacturing skills often never re engage the workforce. Hence you need to reverse the process by implementing the investment spending programmes.

Sure enough as you say you can lead a horse to water but you can’t make it drink. But hopefully Obama, who is an intellectual, will role up his sleeves along with other notable economists and dust of the pages of Keynesian principles to lift the economy out of the mire. It’s not rocket science and I am more hopeful than you are we will see a return of uncommon common sense.

You always needed to invest in the future, and I am reminded of Joseph, who proved its value and made his fortune for his extended family in the promised lands by interpreting a dream for Pharaoh that prompted him to invest in grain silos for the future. When the famine arrived he reigned supreme with Joseph in charge of supplies…………. To those who are given much, much also is expected!!

Best wishes

jozien said...

Hi Zee, here is me , de zon.
I shine on you. and also on those 2%, who will go under in your big waves.
Yes! lets ponder how this new.... way will look like.
I recently read Ancient Futures by Helena Norberg-Hodge. I feel she has some answers.

Zee said...

Yes Lindsay I share your optimism somewhat, at least what Obama and his personality is concerned.
My only pessimism is ingrained in the fact that US-Americans have this habit of not willing to "invest" in the future. It is interesting that you never touched upon that, even though I had mentioned it as the main obstacle.
We will have to wait and see how it goes. The G20 meeting right now is not looking very promising. But then alas, I never had great faith in them to start with.
I like your "Joseph parable", it is indeed the avenue to follow!

Zee said...

Jozien - how did you ever come up with THAT name!?
It is interesting that you suggest a book. Perhaps I will acquire it ...
You see, Wall Street doesn't exist anymore (as we knew it). It hardly has sunk into peoples awareness (or consciousness). Europe is officially in a recession, and so is the US (but the folks of the sacred few who can stamp it such are dragging their feet for obvious reasons).
What can you and I do? Hang in there!

ANNA-LYS said...

That is a beautiful picture!
I could even have said it is sensual - IF she didn't communicate in that negative unsensual manner by holding her hands on her hips and her check up.

That message destroys the experience of sensuality.

Zee said...

OK Anna-Lys, got it. I guess I have to rely on my own original images and not use modified pictures from others...