In part, that's exactly what it is. Taking raw agricultural materials like beef, potatoes, and lettuce, and making them into deliverable food (more or less) is not fundamenatlly different than taking raw mining materials like iron or bauxite, and turning them into deliverable metal products.
What makes McDonald's a mixed bag is that they're also in the business of marketing and delivering what they manufacture. Every manufacturer does that to some extent; but most machine shops don't have a pet clown, a theme song, or a multi-trillion dollar annual advertising budget. So McD's "front end" activities sorta obscure the fact that they actually do something real back there behind the counters.
The problem I have with the way the government keeps track of it statistically is that tech hardware and software is allowing us to do more and more and more for less money, but it isn't reflected in their statistics. As a result people are lulled into this idea that our lives are getting worse due to the statistical stagnation in wages.
In some areas, that may be true (for instance if one is into consuming cars and real estate), but tech it isn't and given the ever increasing amounts of time people are spending on the Internet . . . .
We're getting more and more for less. It just doesn't look that way statistically and it's because the government bureaucrats either don't understand it or don't make an attempt to quantify it when they track economic activity.
When evaluated by where they [said they] were earning their money, the Detroit car companies were not car companies at all but finance companies or quasi banks, making money from speculation [fx was popular]/investment and consumer loans, including residential mortgages [e.g. GMAC -- Diatech Funding, ResCap]. The manufacturing part was a side show.
The car dealers have historically made much more money from F&I [finance and insurance] on a new car sale than from the sale itself.
While there are many examples, remember the Corvair, the Vega, the Chevette, the Chevrolet Citation, the Cadillac Cimeron, the use of Chevrolet engines in the Olds and other higher price cars, the use of the automatic transmission designed for low torque/power applications behind big engines, and value analysis, value analysis, value analysis, to the point that safety, durability, economy and consumer value were compromised even as the corporate bottom line improved.
Its the old old story of the tail wagging the dog, and to mix in a few more metaphors, "milking the cash cow to death," and "cutting the golden goose open."
While I have not worked in the OEM automotive sector in quite a while, I doubt that much has changed in that production/manufacturing is still the lowest rung and last in the corporate pecking order, with all the nominally supporting functions such as "data processing," marketing, finance, accounting, etc. getting the lion's share of management attention, and the individuals in these areas getting the promotions and raises. "Engineering" is next to last, with the main thrust on "cost reduction" and "value analysis."
The only thing surprising about the collapse of GM & Chrysler is that it took this long.
FWIW -- a news article says the domestic new car market is the worst it has been in c. 30 years, with sales now projected to be less than 10 million cars annually.
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As in many news articles the facts appear to be correct, but the import/context is not stated. First, 30 years ago the transplants/imports had a much smaller share of the US market; Secondly the U.S. population was smaller. currently estimated at 306 million
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1979 the U.S. population was estimated at 225 million or about
74% of current population.
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Thus on a population adjusted basis, new car sales are much worse than indicated by the raw numbers, as the sales correspond to 7.4 million adjusted for population growth, which puts the sales back in the "Eisenhower Prosperity Years," particularly when domestic production is considered.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
========= Indeed, but the problem is that with the downsizing, right sizing, early retirements, yada-yada-yada, the institutions have been self administering a pre frontal lobotomy.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
I'm going to send you sa handful of graphs to look at George. The US Loan Book, from Fed Data sources, is a couple of years old and I'll let you figure out why it's laughable. The others are fairly current and there isn't anything funny about them.
========== Of all of the suggestions on this NG, the cat seems the most likely to produce a positive result.
I have downloaded the graphs. I have reviewed these, and I now have a "Don King" do [white and standing on end]
These graphs effectively show that if the FRB and other regulators were not aware of something strange occurring in the US economy, even if they were unable to identify the bubbles, it was only because they did not want to know.
It is clear from the capacity utilization chart that US manufacturing was [and is] going up in smoke, and this does not appear to include the capacity that was liquidated during this time period, so the total utilization should be even lower.
The M2 velocity charts for 1990-2000 should have been another "red flag."
Obama & Company may be correct when they claim the liquidation of GM/Chrysler may well trigger a depression. The problem being, it is not at all clear that pouring more billions of tax payer money into these zombies for bridge, debtor-in-possesion and exit financing, forgiving 40+ billion in loans, lending 12.5 billion to Ally [GMAC] Bank so the customers can be financed to buy the cars, etc. will have the slightest effect, given that the spun off suppliers such as Delphi and American Axle, in addition to the independent suppliers are already in chapter 11, and are starting to move into chapter 7 [liquidation].
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that this does not include the FDIC and FRB capital (taxpayer money) injections]
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the existing Chrysler suppliers such a deal--
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?pid=20601209&sid=aZ4LY9smwZDQ Where/when/how does it end?????
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
I don't think keeping them alive will prevent anything but the sums involved are relatively trivial so it's worth the psych value.
I've sent you a private response George. I wouldn't post anyhing like that publicly. I also have another couple of charts you'll want to see, or maybe not, and I'll send them momentarily.
Bond yields trending up under present conditions only make sense in a narrow set of circumstances. I hope somebody has started working on a plan B that doesn't include debt.
I think the answer to "when" is probably in the neighborhood of between three to nine months tops, unless there is a rabbit hidden in a hat I don't know about. That I wouldn't know is entirely possible. What is less likely is that anyone has a hat that big out of plain sight.
=========== While we are in a very serious recession, it does not yet appear we are in a depression, but read on. The collapse of one or more major governmental units such as California, Michigan, or New York could well be the trigger for this however, because of the huge bond and pension obligations these units represent.
From the available information, it appears that the situation is much as it was in 1931-1933 in that the effects of the bursting of the domestic [US] stock and real estate bubbles, while very dangerous, have been largely contained, albeit at great taxpayer cost and extensive governmental intrusion.
Unfortunately, the major risk now appears that a similar bubble collapse is accelerating in the other countries, which is beyond any control of the US government, but which is likely to have great US domestic impact, as these are our export markets and major debtors for some of our largest financial institutions.
The multi-bubble collapse in Europe is likely to be particularly sharp in that the countries involved, with few exceptions, have eliminated their national currency and adopted the Euro. While this greatly helped international trade in the good times, it also eliminated one of the major tools used by central banks, the ability to increase/decrease the amount of money in circulation.
One contributing factor is the large number of regulatory authorities for banking and financial services, and the proliferation of unregulated/uncontrolled "off-shore" banking, e.g. Iceland. While it may seem incredible, the degree of leverage in these institutions, and the amount of "off-the-books" SPEs/Conduits is even higher than that in the US.
A second contributing factor is that much of the real estate speculation appears to have been concentrated in only a few countries, such as Spain, with the result that they are suffering the full brunt of the real estate collapse, with unemployment nearing 20%.
A third factor is the wide proliferation of low interest loans in hard currencies such as Euros or Swiss Francs in many of the middle European countries. These were particularly attractive as the interest rates were much lower than loans in the national currencies, but with the steep drop in their economic activity and exchange rates, the payments have become unsustainable. These non performing loans appear to represent very significant amounts of "assets" for many major European banks, very similar to our sub-prime, alt-a and commercial real estate securitized loans.
Everything considered, you appear to be correct.
The Obama administration appears to mean well, but the forces with which they are contending appear to be on the order of a magnitude 8 earthquake or Katrina hurricane. Some preventative/ameolerative measures could have been take such as earthquake resistant building codes and evacuation plans, but once the ground starts to shake or the winds start to howl, it's too late, and the only thing that can be done is to come in later after the earthquake or flood, identify and bury the dead, and provide emergency aid for the survivors. Hopefully, lessons will be learned and applied to limit the damage in the next disaster, but this never seems to happen.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
======== While this is a possibility, an economic collapse is far less likely today that it would have been in the 1970s/1980s.
Many of the jobs that will be/have been lost as the result of an automotive bankruptcy and even liquidation are no longer located in the US as these have been out sourced as have the vendors [and those jobs] for components, tooling, etc.
The economic threat from the Detroit chapter 11 and then chapter
7 appears to be way overblown, in that much, even most of the damage has already been inflicted. The pension/medical funds are gone, the vendors are getting stiffed on their accounts payable [such a deal -- 50 cents on the dollar if they will keep supplying parts], and the bond holders/secured creditors are taking it in the shorts big time.
The US government is about to forgive the c. 40 billion in "loans" the taxpayer's were conned into pouring down these rat holes, with additional billions to be dumped in as debtor-in-possession loans, bankruptcy exit financing loans, green product development, etc. The taxpayer's are even providing additional funding for the Ally [former GMAC] Bank for
7.5 billion, so there will be EZ financing available to buy the cars that *MAY* be produced after b/k.
It appears that the GM and Chrysler executives are still "legends in their own minds" as well as being lost in the 60s, however this is not justification for believing their BS.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
May 25 (Bloomberg) -- German Economy Minister Karl-Theodor zu Guttenberg said an ?orderly insolvency? for General Motors Corp.?s Opel unit may be the preferred option because none of the three bidders would take on enough risks.
?An orderly insolvency would be the better solution and could open possibilities for Opel?s future? because current bids don?t sufficiently limit the risks of wasting taxpayers? money, Guttenberg said yesterday, according to his spokesman Steffen Moritz. An insolvency ?doesn?t mean the end of the company? and is something ?we want to avoid,? he said.
The comments are fanning a debate within Chancellor Angela Merkel?s coalition after the minister told Bloomberg News in a May 23 interview that he wasn?t persuaded by offers from Italy?s Fiat SpA, Canadian car-parts maker Magna International Inc. and financial investor RHJ International SA. GM, preparing for a probable June 1 bankruptcy, is selling a majority stake in its European operations, including the Vauxhall brand in the U.K.
=========== Other countries such as the UK and Japan have operated with debt levels at or near their GDP.
In the US the GDP is currently estimated at about 14 trillion, so there is still room for *SOME* maneuver, but bear in mind that increasing amounts of the reported GDP appear to be "spondulicks," not coin of the realm.
What there is no room/money/time for, is "more of the same only better," and "business as usual." The economic contraction is also putting severe stress on the states and local governments, e.g. California.
In all fairness, their debts and other obligations should be added to the Federal Deficit to get an accurate picture of the situation. When this is done, there is a considerable jump, but the total is still far short 100% of GDP, which seems to be the historical tipping point at which the ship rolls over, ala Argentina.
The direct hires although on lay-off are collecting SUB [supplementary unemployment benefits] pay, so that while there income is down, so are their expenses. The supplier's employees are generally not so lucky.
There appears to be enough money in the Federal kitty to fund GM and Chrysler for the next 6 to 9 months, possibly a little more, through the end of 2009. The unknown is what effect the supplier bankruptcies and the CDS [credit default swaps] on the GM/Chrysler debt, with much of this written by AIG will have. It won't be good.
What must be done is the immediate implementation of large numbers of high value added activities generating real money, both internally and even more importantly from exports. Historically, this has been manufacturing.
IMNSHO, it is on this point that the Obama automotive rescue plan fails in that far from being a high value added activity, it appears that nearly all domestic automotive and automotive manufacturing related activities are largely money losers, i.e. are *NEGATIVE* value added operations, albeit large employers. In other words, in order to generate 100$, it is necessary to spend 125$.
Thus the more of the existing domestic auto industry that is "saved," the greater the losses generated, and the more money required to keep the game going.
While there is always a possibility of a major European bank/brokerage, at the level of a Lehman, going down in flames, it appears that the big crunch will occur at the end of the year when the federal money is exhausted and Congress refuses to appropriate anymore. Indeed, if our creditors just stop buying, but not cashing in their existing T-bills, this may produce a situation where there simply is no more money available.
FYI
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a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money."
C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.
SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?
==>OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.
But, but, but... Agriculture - we (the "western" world) produce more food than ever before, but nobody works there any more.
Manufacturing - nobody works "here" any more.
Knowledge-based industries - India for starters, is absorbing a huge chunk of what used to be "western" jobs in software; watch for biotech migration away from here, too. The embrionic stem-cell ban sent a lot of money into labs in other countries - it ain't comin' back.
My cynicism may be founded on realism - what's gonna create teh wealth HERE in the next 30 years? /mark
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
========= The golden rule in operation, the one that states "when you got the gold, you make the rules..."
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Cash Increases Grip on Sinking Italy Defying Berlusconi
Does anyone have information [cites please] of mob money at work in the US like this?
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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