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Crash Test Wham-O: GM (General Malaise) Hits the Wall

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  • Mon, Jun 01, 2009 - 08:42pm

    #1

    machinehead

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    Crash Test Wham-O: GM (General Malaise) Hits the Wall

Today marks Chapter 11 for General Motors, and its replacement in the DJIA by Cisco. What we can learn from this ‘driving while blind’ crack-up?

First, let’s put on our surgical masks and examine the collapse. For sure, GM was on the sick list for a long time. The late John Z. DeLorean told us so thirty years ago, in his book titled On a Clear Day You Can See General Motors. Early in this decade, The Economist stated quite clearly that global auto production was plagued with 25 percent overcapacity even during good times, and that a bloody shakeout would follow.

But just as the extreme overshoots of stocks in 2000 and 2007 set the stage for the savage bear markets which followed, the extreme overshoot in car sales in mid-decade led to the severe sales drought we have today. The ‘zero/zero/zero’ rate blowout announced in mid-2003 by the fatuous halfwit Alan Greenspan produced an orgy of overconsumption, much of it borrowed from sales that would have taken place during 2008-2010. GM throttled up during Bubble II to maintain market share. When sales evaporated during the ensuing bust, it was a life-threatening event for a high-fixed-cost dinosaur like GM. It had no place to hide when sales plunged.

And the lessons for today? Both similarities and differences exist. A similarity is that we’ve gone ‘beyond zero/zero/zero’ into ‘unconventional measures.’ However, unlike Bubble II, this rate distortion is not being used to turbocharge auto, housing and retail sales. Instead, it’s being used for something far worse — dumping the next ten years’ worth of capital investment into a collapsing Ponzi scheme.

Everyone who’s ever escaped from a Ponzi scheme with a profit — such as those who bailed out of Bernie Madoff’s fund two or three years ago — knows that you have to leave before the first default. Once the cracks in CONfidence appear, it’s too late.

By contrast, the Fed/Treasury madmen have pumped capital into Ponzi companies AFTER their collapse — and they’re still doing it. There is almost no chance of this malinvestment yielding a profit. In fact, the socialized financial sector, consisting mostly of nonproductive and even value-subtracting enterprises, over time will actually consume the principal.

This is a big deal. Wasting years worth of the investment capital needed by the entire economy means chronic unemployment and underemployment, aging plant and equipment, and loss of technological competitiveness as R&D is starved. Under these circumstances, the U.S. faces bleak choices: borrowing itself deeper into a hole, implementing an inflation tax with currency printing, or selling assets to foreigners to obtain capital. In practice, all three of these desperate measures will be used.

Life-changing consequences follow from this. Like the Soviet Union in 1990, the U.S. today is a militarily dangerous, but economically decadent and capital-starved empire. It is headed for ‘former superpower’ status in short order.

How did this happen? (1) Federal Reserve Act; (2) permanent war [paper money is, first and foremost, a mechanism of war finance]; (3) superstitious delusions spread by ‘economics,’ which masquerades as a science, but in practice has served as little more than a  tweed-jacketed army of Ponzi apologists.

If elected to public office, I will hose out the Harvard economics department, fill it three feet deep with dirt, manure and hay, and turn it into a HOG WALLOW.

BACON! BACON! BACON FOR THE PEOPLE! 

  • Tue, Jun 02, 2009 - 12:11am

    #2
    Peak Prosperity Admin

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    Goodbye, GM.

"Just as President Roosevelt did after the attack on Pearl Harbor, the President must tell the nation that we are at war and we must immediately convert our auto factories to factories that build mass transit vehicles and alternative energy devices."

I advocated exactly this a few months ago on another thread abot what to do in the future….  I personally see no other way out.  We are at the crossroads, and I unequivocally agree with Michael Moore on this one.

Mike.

Goodbye, GM
by Michael Moore

June 1, 2009

I write this on the morning of the end of the once-mighty General Motors. By high noon, the President of the United States will have made it official: General Motors, as we know it, has been totaled.

As I sit here in GM’s birthplace, Flint, Michigan, I am surrounded by friends and family who are filled with anxiety about what will happen to them and to the town. Forty percent of the homes and businesses in the city have been abandoned. Imagine what it would be like if you lived in a city where almost every other house is empty. What would be your state of mind?

It is with sad irony that the company which invented "planned obsolescence" — the decision to build cars that would fall apart after a few years so that the customer would then have to buy a new one — has now made itself obsolete. It refused to build automobiles that the public wanted, cars that got great gas mileage, were as safe as they could be, and were exceedingly comfortable to drive. Oh — and that wouldn’t start falling apart after two years. GM stubbornly fought environmental and safety regulations. Its executives arrogantly ignored the "inferior" Japanese and German cars, cars which would become the gold standard for automobile buyers. And it was hell-bent on punishing its unionized workforce, lopping off thousands of workers for no good reason other than to "improve" the short-term bottom line of the corporation. Beginning in the 1980s, when GM was posting record profits, it moved countless jobs to Mexico and elsewhere, thus destroying the lives of tens of thousands of hard-working Americans. The glaring stupidity of this policy was that, when they eliminated the income of so many middle class families, who did they think was going to be able to afford to buy their cars? History will record this blunder in the same way it now writes about the French building the Maginot Line or how the Romans cluelessly poisoned their own water system with lethal lead in its pipes.

So here we are at the deathbed of General Motors. The company’s body not yet cold, and I find myself filled with — dare I say it — joy. It is not the joy of revenge against a corporation that ruined my hometown and brought misery, divorce, alcoholism, homelessness, physical and mental debilitation, and drug addiction to the people I grew up with. Nor do I, obviously, claim any joy in knowing that 21,000 more GM workers will be told that they, too, are without a job.

But you and I and the rest of America now own a car company! I know, I know — who on earth wants to run a car company? Who among us wants $50 billion of our tax dollars thrown down the rat hole of still trying to save GM? Let’s be clear about this: The only way to save GM is to kill GM. Saving our precious industrial infrastructure, though, is another matter and must be a top priority. If we allow the shutting down and tearing down of our auto plants, we will sorely wish we still had them when we realize that those factories could have built the alternative energy systems we now desperately need. And when we realize that the best way to transport ourselves is on light rail and bullet trains and cleaner buses, how will we do this if we’ve allowed our industrial capacity and its skilled workforce to disappear?

Thus, as GM is "reorganized" by the federal government and the bankruptcy court, here is the plan I am asking President Obama to implement for the good of the workers, the GM communities, and the nation as a whole. Twenty years ago when I made "Roger & Me," I tried to warn people about what was ahead for General Motors. Had the power structure and the punditocracy listened, maybe much of this could have been avoided. Based on my track record, I request an honest and sincere consideration of the following suggestions:

1. Just as President Roosevelt did after the attack on Pearl Harbor, the President must tell the nation that we are at war and we must immediately convert our auto factories to factories that build mass transit vehicles and alternative energy devices. Within months in Flint in 1942, GM halted all car production and immediately used the assembly lines to build planes, tanks and machine guns. The conversion took no time at all. Everyone pitched in. The fascists were defeated.

We are now in a different kind of war — a war that we have conducted against the ecosystem and has been conducted by our very own corporate leaders. This current war has two fronts. One is headquartered in Detroit. The products built in the factories of GM, Ford and Chrysler are some of the greatest weapons of mass destruction responsible for global warming and the melting of our polar icecaps. The things we call "cars" may have been fun to drive, but they are like a million daggers into the heart of Mother Nature. To continue to build them would only lead to the ruin of our species and much of the planet.

The other front in this war is being waged by the oil companies against you and me. They are committed to fleecing us whenever they can, and they have been reckless stewards of the finite amount of oil that is located under the surface of the earth. They know they are sucking it bone dry. And like the lumber tycoons of the early 20th century who didn’t give a damn about future generations as they tore down every forest they could get their hands on, these oil barons are not telling the public what they know to be true — that there are only a few more decades of useable oil on this planet. And as the end days of oil approach us, get ready for some very desperate people willing to kill and be killed just to get their hands on a gallon can of gasoline.

President Obama, now that he has taken control of GM, needs to convert the factories to new and needed uses immediately.

2. Don’t put another $30 billion into the coffers of GM to build cars. Instead, use that money to keep the current workforce — and most of those who have been laid off — employed so that they can build the new modes of 21st century transportation. Let them start the conversion work now.

3. Announce that we will have bullet trains criss-crossing this country in the next five years. Japan is celebrating the 45th anniversary of its first bullet train this year. Now they have dozens of them. Average speed: 165 mph. Average time a train is late: under 30 seconds. They have had these high speed trains for nearly five decades — and we don’t even have one! The fact that the technology already exists for us to go from New York to L.A. in 17 hours by train, and that we haven’t used it, is criminal. Let’s hire the unemployed to build the new high speed lines all over the country. Chicago to Detroit in less than two hours. Miami to DC in under 7 hours. Denver to Dallas in five and a half. This can be done and done now.

4. Initiate a program to put light rail mass transit lines in all our large and medium-sized cities. Build those trains in the GM factories. And hire local people everywhere to install and run this system.

5. For people in rural areas not served by the train lines, have the GM plants produce energy efficient clean buses.

6. For the time being, have some factories build hybrid or all-electric cars (and batteries). It will take a few years for people to get used to the new ways to transport ourselves, so if we’re going to have automobiles, let’s have kinder, gentler ones. We can be building these next month (do not believe anyone who tells you it will take years to retool the factories — that simply isn’t true).

7. Transform some of the empty GM factories to facilities that build windmills, solar panels and other means of alternate forms of energy. We need tens of millions of solar panels right now. And there is an eager and skilled workforce who can build them.

8. Provide tax incentives for those who travel by hybrid car or bus or train. Also, credits for those who convert their home to alternative energy.

9. To help pay for this, impose a two-dollar tax on every gallon of gasoline. This will get people to switch to more energy saving cars or to use the new rail lines and rail cars the former autoworkers have built for them.

Well, that’s a start. Please, please, please don’t save GM so that a smaller version of it will simply do nothing more than build Chevys or Cadillacs. This is not a long-term solution. Don’t throw bad money into a company whose tailpipe is malfunctioning, causing a strange odor to fill the car.

100 years ago this year, the founders of General Motors convinced the world to give up their horses and saddles and buggy whips to try a new form of transportation. Now it is time for us to say goodbye to the internal combustion engine. It seemed to serve us well for so long. We enjoyed the car hops at the A&W. We made out in the front — and the back — seat. We watched movies on large outdoor screens, went to the races at NASCAR tracks across the country, and saw the Pacific Ocean for the first time through the window down Hwy. 1. And now it’s over. It’s a new day and a new century. The President — and the UAW — must seize this moment and create a big batch of lemonade from this very sour and sad lemon.

Yesterday, the last surviving person from the Titanic disaster passed away. She escaped certain death that night and went on to live another 97 years.

So can we survive our own Titanic in all the Flint Michigans of this country. 60% of GM is ours. I think we can do a better job.

Yours,

Michael Moore

[email protected]
MichaelMoore.com

  • Tue, Jun 02, 2009 - 03:12am

    #3
    Peak Prosperity Admin

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    Re: Crash Test Wham-O: GM (General Malaise) Hits the Wall

 Michael Moore presents some good ideas in that piece, especially point 9: To help pay for this, impose a two-dollar tax on every gallon of gasoline. This will get people to switch to more energy saving cars or to use the new rail lines and rail cars the former autoworkers have built for them. Obama should put him in charge of restructuring GM.

 

  • Tue, Jun 02, 2009 - 03:30am

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    Re: Crash Test Wham-O: GM (General Malaise) Hits the Wall

Excellent post, Mike!

  • Tue, Jun 02, 2009 - 12:56pm

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    Re: Crash Test Wham-O: GM (General Malaise) Hits the Wall

Mike & Others:

The proposals made by Moore are not only dangerous but also impractical.  What this calls for basically is more centralized, top-down, government control of our economy, specifically the car industry.  I can see how very easy it would be for these proposals to be taken seriously and even adopted by the US government.  In periods of economic gloom, combined with a charismatic leader and lopsided political power in the legislative branch, history has shown that government power and intrusion into the private sector can easilly grow beyond anything thought possible.  That’s how FDR managed to stay in power despite having a worsening economy at every election cycle, packed the Supreme Court in a move remeniscent of typical dictators, and moved the government into areas of the economy that still haunt us today (like the social security ponzi scheme).

The public will buy what it deems of highest value.  If that takes the form of small, economic, energy-efficient cars, then they will buy them.  Forcing them on the population is not going to make them choose GM over Toyota or some other vehicle.  It will just decimate our domestic auto industry further.

Furthermore, I am more concerned over the principles that would allow the government this kind of power.  I believe it was Benjamin Franklin who said, "Do not give the government any power you would not give your worst enemy."  No matter how well-meaning, eventually this power will be abused or used in ways not originally intended.  Look at the Patriot Act as an example.

I also believe "Coercion is the root of all evil."  I don’t know who said that, but I believe that sums up everything that has anything to do with the credo of Liberty.  Forcing people to make or buy certain cars is co-ercion and could easilly be extended to force all manner of things upon people.  I do not want Michael Moore in charge of what I drive anymore than I want him in charge of what food I eat.

Be careful what you wish for.

 

  • Tue, Jun 02, 2009 - 01:34pm

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    Re: Crash Test Wham-O: GM (General Malaise) Hits the Wall

… what would you propose as an alternative Patrick?

… serious question … not being provocative …

Best,

Paul

  • Tue, Jun 02, 2009 - 01:51pm

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    Re: Crash Test Wham-O: GM (General Malaise) Hits the Wall

Another great post Machinehead.

Here’s the great Dr. Hussman weighing in with a similar assessment:

There’s an economists’ riddle that goes “Why are the debates in academia so bitter?” – the answer – “Because the stakes are so low.” Now, very often, that’s true. I remember a presentation that Paul Krugman gave at Stanford where he was talking about a model of economic development. Paul drew a diagram on the board, and as he described it, he drew a few little arrows indicating migration of businesses from one area to another. A respected economic theorist at Stanford, Mordecai Kurz (who never drew an arrow without a differential equation), immediately jumped up and shouted “You haven’t described the dynamics!!” to which Paul responded that he was indicating a general movement of economic activity toward one place to improve efficiency. Dr. Kurz pounded the table and screamed “Then erase the arrows!! ERASE THE ARROWS!!” and then stormed out of the room and slammed the door behind him. I think that was probably the exact moment that I decided to go into finance.

Presently, however, the debate about the long-term economic fallout from this defense of bank bondholders is anything but academic. I recognize that I have been on a virtual rant about it in recent months, but the reason is that it is literally the most important fiscal and bureaucratic event that we are likely to observe in our lifetimes, and is very possibly the precursor to enormous future economic difficulties.

You simply cannot have an economy lend out trillions of dollars in bad debt, and then make the lenders whole with public funds (while still facing a massive second wave of probable mortgage defaults) without destructive repercussions. There is very little chance, in my view, that the current downturn is over.

We have enjoyed a nice reprieve – if over a trillion dollars in redistribution could not accomplish even a reprieve, it would be a surprise. It’s clear that investors are hopeful that we can simply return to rich valuations, debt-financed economic expansion, and abnormal profit margins based on excessive leverage. From my perspective, this hope is as thin as those that we observed at the peak of the internet bubble, the housing bubble, and the profit margin peak of 2007.

These are momentous times.  We are blindly sacrificing the future to preserve a current illusion and the profits and positions of the already wealthy.  Heckuva way to run a country.

  • Tue, Jun 02, 2009 - 02:15pm

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    Re: Crash Test Wham-O: GM (General Malaise) Hits the Wall

Patrick Brown said:  The proposals made by Moore are not only dangerous but also impractical.  What this calls for basically is more centralized, top-down, government control of our economy, specifically the car industry.  I can see how very easy it would be for these proposals to be taken seriously and even adopted by the US government.  In periods of economic gloom, combined with a charismatic leader and lopsided political power in the legislative branch, history has shown that government power and intrusion into the private sector can easilly grow beyond anything thought possible.

We still seem to look to the government for solutions to problems that they create.  The problem is NOT that we need more government, the problem is that we have too much government and too much intervention.  The lines between government and the private sector are being erased as we move to a Nazi form of "corporatism." 

machinehead said: Life-changing consequences follow from this. Like the Soviet Union in 1990, the U.S. today is a militarily dangerous, but economically decadent and capital-starved empire. It is headed for ‘former superpower’ status in short order.

How did this happen? (1) Federal Reserve Act; (2) permanent war [paper money is, first and foremost, a mechanism of war finance]; (3) superstitious delusions spread by ‘economics,’ which masquerades as a science, but in practice has served as little more than a  tweed-jacketed army of Ponzi apologists.

I agree that #1 was the Federal reserve act, which was quickly followed by the mechanism to collect on their debt via income tax.  If you get rid of #1, then #3 will also be eliminated. 

I don’t understand what you meant by #2 – permanent war [paper money is, first and foremost, a mechanism of war finance] What does permanent war have to do with "paper money"?  Permanent war will certainly ruin an economy but you seem to imply that paper money is bad. 

I suggest that paper money is a solution, not a problem – the problem arises when paper money becomes nothing more than interest bearing debt, which is what we now have.  Paper money may also be issued free of debt and/or interest if we take back our sovereign right to issue and control our own currency.

The restoration of Lincoln’s greenbacks would go a long way to solving our current crisis but that opportunity will stay hidden as long as we remain a client state of international bankers and corporatism.

Larry

  • Tue, Jun 02, 2009 - 02:21pm

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    Re: Crash Test Wham-O: GM (General Malaise) Hits the Wall

[quote=Patrick Brown]

Mike & Others:

The proposals made by Moore are not only dangerous but also impractical.  What this calls for basically is more centralized, top-down, government control of our economy, specifically the car industry.  I can see how very easy it would be for these proposals to be taken seriously and even adopted by the US government.  In periods of economic gloom, combined with a charismatic leader and lopsided political power in the legislative branch, history has shown that government power and intrusion into the private sector can easilly grow beyond anything thought possible.  That’s how FDR managed to stay in power despite having a worsening economy at every election cycle, packed the Supreme Court in a move remeniscent of typical dictators, and moved the government into areas of the economy that still haunt us today (like the social security ponzi scheme).

The public will buy what it deems of highest value.  If that takes the form of small, economic, energy-efficient cars, then they will buy them.  Forcing them on the population is not going to make them choose GM over Toyota or some other vehicle.  It will just decimate our domestic auto industry further.

Furthermore, I am more concerned over the principles that would allow the government this kind of power.  I believe it was Benjamin Franklin who said, "Do not give the government any power you would not give your worst enemy."  No matter how well-meaning, eventually this power will be abused or used in ways not originally intended.  Look at the Patriot Act as an example.

I also believe "Coercion is the root of all evil."  I don’t know who said that, but I believe that sums up everything that has anything to do with the credo of Liberty.  Forcing people to make or buy certain cars is co-ercion and could easilly be extended to force all manner of things upon people.  I do not want Michael Moore in charge of what I drive anymore than I want him in charge of what food I eat.

Be careful what you wish for.

 

[/quote]

 

Patrick,

 

I completely agree. We need less intrusion by government, not more.

If  a business is not economically sound then it should go bankrupt.

As far as taxes go; we have too many now with gov. wasting most of the money. I don’t want to give them more to waste.

Ken

 

  • Tue, Jun 02, 2009 - 02:26pm

    #10
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    Re: Crash Test Wham-O: GM (General Malaise) Hits the Wall

michael moore makes some good points. unfortunately he is still operating in a socialist mentality. obama is not going ot fix anything. what qualifications does he have to run a car company? what qualifications does th eu.s. congress have to run a car company?

is it even the job of them to do so?

waht happened to the constitiution? where in there does it say the government should take over a private corporation?

folks we left the reservation a long time ago.

moore wants to tax each gallon of gas another $2. who does that hurt? the poor and middle class thats who. and we end up giving money to people who have demonstrated a complete lack of fiscal responsibility.

this is the end game…………………mate

thomas jefferson just committed suicide.

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