automakers revisted

[kiryan]

http://news.yahoo.com/s/afp/20090201/bs ... osuppliers

You had to wonder how bailing out automakers was going to save the 2 million jobs in the auto parts manufacturers if automakers aren't making cars because consumers aren't buying cars.

Who do we bail out after the autoparts suppliers and the dealerships?

The government is trying its damndest to stimulate the economy... or rather get the economy back on to the track it was on. The problem I see is that there may be a real, permanent shift in consumer attitudes that prevent a return to the economy of old. If people stop buying new cars every 3-5 years and start buying new cars every 5-7 years, then there is an astronomical amount of capacity (read jobs) that has to be lost permanently. I suppose they could turn those lost jobs into more overhead... maybe "green" overhead, but that pushes the cost of cars up.

[Corth]

The excess capacity is not just in the auto sector. Just about every industry has excess capacity because all recent growth was based upon assumptions resulting from a credit bubble that is permanently deflating.

[Alta]

http://news.yahoo.com/s/ap/20090201/ap_ ... al_society

Article on the shift towards savings. Since consumerism was 70% of the economy, if people save, the economy shrinks, people permanently lose their jobs.

[Corth]

You couldn't expect otherwise. The majority of the baby boom generation just saw their retirement savings cut in half.

What gets me is that the article says that this shift towards savings "couldn't be happening at a worse time". As far as I am concerned, there is NO wrong time to save. When you have a country of savers, you have an enormous wealth of stored capital that can be used for productive purposes. Such a country, even in a recession, deals from a position of strength. The US was a great example of this for much of the 20th century.

Unfortunately, our politicians have encouraged us in recent times, through policy and otherwise to be a country of consumers, not savers. In fact, much of the wealth in this country has been shifting overseas to countries that do not view themselves primarily as consumers.

Giving up the notion that we can spend our way to prosperity is the first step here towards breaking a destructive political and economic cycle.

[kiryan]

the "problem" is that its a dramatic shift and there are winners and losers. The losers happen to be primarily the baby boomers who don't have much way of compensating for the massive destruction of wealth that has just occured. In some sense it is the worst time.

On the other hand, we've been pushed towards 401ks as the primary source of our retirement for the past 10 years, can you imagine how big of a problem this would've been had this happened after 40 years of counting on the stock market to retire?

Now that people are saving again, the only problem is how are we going to pay off that deficit if the economy doesn't keep growing and increasing tax revenue. Its easy to borrow into the future when you expect to have more income, but the future is looking very grim.

[Corth]

Its kind of like debating the existence of Santa Claus or the Easter Bunny. Sure, it would be really nice if they existed. But...

So in the context of financial armageddon, sure it would be nice if everyone started spending money like we were once again living in a huge credit bubble that occurs once in a century. But...

The keynesian methods being employed currently are tactics that worked in past recessions when there was sufficient stored capital. Our generals are still fighting those previous wars. This is not a situation where we just need to loosen the spigots a little to get things flowing again. This is a situation where every segment of society is tapped out. Municipalities. Corporations. Banks. Individuals. Everyone and everything is insolvent. There is no way to get people to spend like they did just a year ago, and quite frankly, thats a good thing.

You asked how the debt is going to be paid off. I don't believe that it will be in any sort of honest way. Either it will be liquidated in bankruptcies and foreclosures, or paid back in dollars that are rendered much less valuable due to money printing. Likely a combination of both.

My own question is one of timing. How long does it take Helicopter Ben Bernanke to sufficiently debase the currency by printing those dollars?

[kiryan]

We absolutely agree.

You can return to consuming if you expand the money supply... which effectively erases your debts.

There is no legitimate way out of this. The government is massively redistributing wealth and debt, picking the winners and the losers all so they can prime the pump on consumerism and take us on another ride...

What boggles my mind is that people still want the dollar.

[Ragorn]

You can stimulate the economy by convincing everyone to start spending again... just like you can solve traffic if everyone would just start driving the same speed at the same time. Great theory, good luck making it work.

[Corth]

Which is why I bought commodities after the market crashed. But thats besides the point. I don't think consumerism will return, even if the the dollar is debased. The consumerism was based upon easy financing, which won't be around even if the money spigots are turned up. Bankers have learned their lesson for the next 50 years or so. Moreover, the wealth destroying effect of the inflation will negatively impact spending power and standards of living. Debasing the currency has costs too.

[Corth]

You can stimulate the economy by convincing everyone to start spending again... just like you can solve traffic if everyone would just start driving the same speed at the same time. Great theory, good luck making it work.

I really like that analogy. Taking it a little further.. even if everyone decided they wanted to drive faster, they can't, because most drivers are out of gas. Thats where we're at now.