As related here by Yves Smith at naked capitalism, President Obama has decided to place Treasury Secretary Timothy Geithner and National Economic Council chair Lawrence Summers in charge of overseeing the extension of federal financial assistance to the automobile industry. Smith describes the pitfalls of doing so in his typically entertaining, enlightening style, but glosses over the obvious.

As with the bailout, Geithner and Summers will act to ensure that capital, that is, the investors, are favored over the proletariat, that is, the workers, thus serving to further depress demand and intensify deflation. They will continue to channel federal funds for the benefit of what Michael Hudson and others have described as FIRE, the finance, insurance and real estate sectors of the economy, to the detriment of tangible production and consumption. As Hudson explained last week over at Counterpunch in relation to Geither's skeletal plan to revive the banks:

The three-pronged Treasury program seems to be only Stage One of a two-stage “dream recovery plan” for Wall Street. Enough hints have trickled out for the past three months in Wall Street Journal op-eds to tip the hand for what may be in store. Watch for the magic phrase “equity kicker,” first heard in the S&L mortgage crisis of the 1980s. It refers to the banker’s share of capital gains, that is, asset price inflation in Bubble #2 that the Recovery Program hopes to sponsor.

The first question to ask about any Recovery Program is, “Recovery for whom?” The answer given on Tuesday is, “For the people who design the Program and their constituency” – in this case, the bank lobby. The second question is, “Just what is it they want to ‘recover’?” The answer is, the Bubble Economy. For the financial sector it was a golden age. Having enjoyed the Greenspan Bubble that made them so rich, its managers would love to create yet more wealth for themselves by indebting the “real” economy yet further while inflating prices all over again to make new capital gains.

The problem for today’s financial elites is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. No amount of new capital will induce banks to provide credit to real estate already over-mortgaged or to individuals and corporations already over-indebted. Moody’s and other leading professional observers have forecast property prices to keep on plunging for at least the next year, which is as far as the eye can see in today’s unstable conditions. So the smartest money is still waiting like vultures in the wings – waiting for government guarantees that toxic loans will pay off. Another no-risk private profit to be subsidized by public-sector losses.

Accordingly, one should perceive the selection of Geithner and Summers to oversee efforts to revive the automobile industry as part of a larger effort to revive the bubble economy of the last 15 years. What does this mean? Further subsidization of investors by the government and the workforce so as to create future speculative opportunities. Workplace protections will be eroded, if not eviscerated, while a program is developed, probably in association with the development of so-called green technologies for automobiles, to attract future investment.

In the unlikely event that Geithner and Summers succeed in their regressive effort to return to the bubblicious world of the Clinton and Bush presidencies, don't be surprised if one of the first bubbles of this brave new world emerges in spinoff companies associated with GM, Ford, and, if it survives, Chrysler. Companies free, of course, from the constraints of a unionized workforce. Eric Janszen of iTulip, has already generally anticipated such a development in relation to alternative energy, and the distressed automobile industry looks like a good laboratory for it.

As for the automobile workers themselves, they obviously had good reason to distrust Obama during the 2008 election, despite attempts to characterize their suspicion of him as racist. They are about to get royally screwed by a President from a political party that poses as their protector. Just in time to face the prospect of lower social security and Medicare benefits upon retirement.

Labels: Bailout of Finance Capitalists, Credit Crunch, Death of Detroit, Global Recession, Neoliberalism, Sub-Proletarianization of America

Canada will suffer severely if the Big 3 automakers don't receive assistance:

A whopping 582,000 direct and indirect jobs would be lost in Canada over the next five years if the ailing Big Three US auto makers shut down their Ontario operations, said a study Tuesday.

If output is reduced by 50 percent, 296,000 jobs would be lost nationally, said the 11-page report prepared for the Ontario Manufacturing Council.

"The economic consequences of either a partial or total shutdown of the Detroit Three are stark," said the report.

"Either scenario is sufficient to push Ontario into a deep recession while the nation may barely escape one in the 50-percent reduction scenario."

Initial job losses of between 157,000 and 323,000 at assembly plants, parts manufacturers and others, depending on the scenario, would rise to between 296,000 and 582,000 by 2014, said the report.

The job losses would continue to mount after the first year because a weaker economy would depress investment, discourage immigration and half new housing construction, leading to a negative economic spiral.

To quote Gaius again about the perverse opportunity created by the global recession: Played right by the globo-capitalists, wages would collapse, unions would disappear, and America could be pushed into ending Social Security, Medicare, Medicaid, and a lot more of what social democracy we actually have.

But Gaius is actually too optimistic. As this article suggests, the globo-capitalists have ambitions that are go far beyond the US. In the 1970s, finance capitalists exploited stagflation to impose the neoliberal model on much of the world, a model that has persisted to the present day. There is no alternative, as Margaret Thatcher famously declared.

Now, they intend to push the model to its logical conclusion. They intend to destroy all protections for labor, consumers and the environment, with the exception of those few that facilitate commerce. They are especially targeting workers who retain a residue of collective solidarity created in earlier times, as they are here with the United Auto Workers by withholding financial assistance to the US automobile industry after releasing trillions for Wall Street. Meanwhile, much of the work force is going to simultaneously discover that their access to credit has been sharply curtailed, if not eliminated, while social spending for health, education and other social services is reduced to to pay for the debt incurred to bail out financial institutions.

It is a quite alarming development because of its global character. The imposition of neoliberal policies from the 1970s to the present day required ever escalating levels of state violence, the military dictatorships of South America, death squads in Central America, sanctions against Iraq that killed hundreds of thousands of children, two Gulf Wars, and ongoing occupations of Iraq and Afghanistan. One shudders to think about the intensity of the violence required to force through this anticipated tranformation of the world economy. Obama, you say? I doubt that he is going to be of much help.

Labels: American Empire, Credit Crunch, Death of Detroit, Global Recession, Neoliberalism, Sub-Proletarianization of America

If you hadn't noticed, the unwillingness of the President and the Republicans to support a $25 billion loan to the auto industry, even from the proceeds of a loan in this amount already approved to retool auto plants, after $2 trillion has been dispensed to the financial sector, is really about shattering the United Auto Workers, even if it intensifies the severity and length of the recession:

Earlier, in Detroit, the president of the United Automobile Workers union, Ron Gettelfinger, on Thursday urged Congress to approve some type of financial support for automakers before adjourning for the year to prevent millions of people from losing their jobs.

“If one of these companies goes over the cliff, it could for sure take at least one of the others, if not both, with them,” Mr. Gettelfinger said, speaking at a news conference at the U.A.W.’s headquarters, known as Solidarity House. “We cannot allow one of these companies to fall off a cliff.”

Mr. Gettelfinger joined the leaders of General Motors, Ford Motor and Chrysler in testifying before two Congressional committees in Washington this week, as the companies requested $25 billion in loans to avoid bankruptcy.

The executives encountered harsh criticism and little sympathy on Capitol Hill toward the auto industry’s plight, and so Mr. Gettelfinger is now attempting to focus the discussion on saving jobs rather than the much-maligned automakers.

He said that a Detroit bankruptcy, which many industry critics have said is the best option to allow for effective restructuring, would ripple throughout the United States economy and that “the current recession would be made much worse.”

Hundreds of thousands would be laid off by companies that supply parts to the automakers, he maintained, and each job related to automotive manufacturing supports many more in other fields.

Mr. Gettelfinger blasted members of Congress whose states enticed foreign automakers like Honda and Mercedes to open plants there by giving out $3 billion in tax breaks and other incentives since 1992 but who oppose help for Detroit.

He specifically cited Alabama, the home of four nonunion car factories, and of Senator Richard Shelby, a Republican who condemned the Detroit carmakers and their chief executives this week.

“We can help the financial industry and give incentives to let foreign automakers compete against us,” Mr. Gettelfinger said, “but at the same time we’re able to walk away from the industry that is the backbone of our economy.”

It is a markedly different approach than the one taken by Sarkozy in France:

Vowing to protect French industry from foreign predators and a worsening economic slump, President Nicolas Sarkozy introduced a strategic investment fund of 20 billion euros ($25 billion) on Thursday.

He also announced its first investment and promised a stimulus package in coming weeks with the aim of investing “massively” in infrastructure, education and research, and hinted that the auto industry might get a helping hand.

The European Commission is likely to scrutinize the fund’s investments to ensure they do not restrict the free flow of capital, a violation that could lead to legal action by the commission.

Mr. Sarkozy said the first investment would be made in Daher, an aeronautics supplier located near Tours, in central France.

Speaking at Daher, Mr. Sarkozy said the fund stood ready to take stakes in large and strategically important companies vulnerable to takeovers because of falling stock prices.

“I won’t let foreign funds get bargains thanks to the current levels of the stock market,” Mr. Sarkozy said. “I won’t let French industry move out.”

The fund will also invest in smaller companies that have high growth potential but are having trouble getting loans from fearful banks, the president said, a gesture that officials hope will appease the competition authorities in Brussels.

As an aside, it is interesting to note the the implied inducement by the author of the article for the EU competition authorities in Brussels to intervene to stop the disbursement of monies to French industry. Not surprisingly, the article was published in the New York Times, one of the media bastions of neoliberalism, as reflected by Thomas Friedman, Nicholas Kristoff and others. Nothing is more horrifying to the Times and its staff than the prospect that a country might use its resources to prevent US capital from obtaining a dominant position within it.

More substantively, the notion that the EU could act to prohibit such policies sounds ludicrous. Most countries are going to invariably undertake whatever pragmatic prolicies they consider appropriate to escape one of the most merciless economic downturns in decades. Unfortunately, so far, the US is not one of them. Political and media elites remain mesmerized by memories of a US global financial dominance that was swept away by the bursting of the housing bubble.

Labels: American Empire, Credit Crunch, Death of Detroit, Global Recession, Neoliberalism, Sub-Proletarianization of America

From Bloomberg News:

A merger of General Motors Corp., the largest U.S. automaker, and Chrysler LLC may cost 74,000 jobs and close half of the smaller company's plants, according to a report from an accounting firm.

The combination may eliminate all but seven of Chrysler's car and truck models, Grant Thornton LLP said. Chrysler, the No. 3 U.S. automaker, would keep the Dodge Ram pickup, minivans and some Jeep models, the report said. GM and Chrysler owner Cerberus Capital Management LP are studying a merger, people familiar with the plans have said.

The automakers will probably have a tentative agreement before the Nov. 4 U.S. presidential election, said Kim Rodriguez, who leads Grant Thornton's automotive restructuring group. Still, a tie-up will be impossible without an infusion of cash to bolster the balance sheet of the new company, she said.

``It's probably not the optimal solution, but unfortunately it's the optimal solution given the facts in which we find ourselves,'' Rodriguez said in a presentation today in Southfield, Michigan.

The combined company would have to cut 24,000 Chrysler jobs, split evenly between administrative and manufacturing employees, Rodriguez said. That figure includes the already- announced 25 percent reduction in salaried workers by Chrysler.

A study released yesterday by Anderson Economic Group of East Lansing, Michigan, said the merger may cost 25,000 to 35,000 jobs.

As indicated by the following quote, Rodriquez arrived at a total of 74,000 jobs directly associated with the merger by calculating additional job losses in the auto-parts industry. But it goes beyond that:

An additional 50,000 jobs may be lost in the auto-parts industry, which would be buffeted by fewer car models and closed plants. Along with positions in shipping, advertising and other indirect services, job losses could be 100,000 to 200,000, Rodriguez estimated.

Newspapers, in particular, are going to be devastated by the merger. Communities that rely upon the manufacture, transportation and sale of automobiles are going to be hard hit as well. In addition to job losses, a lot of cities and counties rely upon auto malls for sales tax. They are going to experience significant declines in revenue when the local Chrysler dealers are consolidated with the GM ones after having already lost numerous Ford ones. Social services, such as indigent medical care and general assistance, among others, will be cut.

But these consequences, while serious, are peripheral to the job losses. Where will these people go to work after losing their auto-related jobs? Unemployment is likely to skyrocket for the next 2 to 3 years before it begins to decline. Even if they find jobs, how much will they get paid? Not nearly as much as they got paid before. Meanwhile, as I observed earlier today, their access to credit is going to get cut off, if it hasn't already.

Labels: Credit Crunch, Death of Detroit, Global Recession, Neoliberalism, Sub-Proletarianization of America

From today's Sacramento Bee:

Sales of new cars and light trucks in California fell a whopping 19.1 percent in the third quarter from a year ago, according to a report released today.

The California New Car Dealers Association said its industry has been "turned upside down" by the credit crunch and general economic downturn. "Clearly this is not a prescription for a vibrant new vehicle market," the report said.

It was the latest evidence of a significant recession.

Mind you, the recession has just begun. There are between 7 and 23 more months to go, and possibly more, depending upon whether you believe the recession will be short, moderate or lengthy. Despite the loss of market share to Japan, the automobile industry remains the backbone of many communities. It absorbs a lot of semi-skilled labor that would have otherwise been paid much less, and therefore unable to live a middle class lifestyle. It has formed a critical component of consumption in an American economy that has fueled growth around the world.

With rumors abounding that GM and Chrsyler are about to merge, or, alternatively, that Ford or GM or Chrysler or any combination thereof must file bankruptcy, the future, at least within the US, looks bleak. At best, a downsized industry producing fewer vehicles, with many of them manufactured elswhere. At worst, an industry considered American in name only, with nearly all vehicles and parts manufactured and assembled outside the country, with the exception of plants operated by Japanese companies. GM is already seeking a $5 Billion loan, possibly for the purchase of financing a Chrysler merger.

The contraction, and possible eradication, of the domestic automobile industry will be an enormous socioeconomic development. If not for a crisis that engulfs the entire neoliberal capitalist world, it would be the domestic center of attention. It will accelerate the sub-proleterianization of America, hollowing out middle income consumption through deindustrialization. Foreclosed out of their homes, discharged from their jobs as plants are permanently shuttered, along with others in businesses that rely upon them, many will find themselves constituting a new floating population with no personal and economic security. The union movement would experience a devastating, if not fatal, blow.

It is hard to suppress thoughts about one possible solution: another war, much larger in scope than the ones launched by Bush, a war instigated for the purpose of utilizing the excess industrial capacity within the US economy. No doubt, an extreme solution after all else fails, but, so far, the all else hasn't been very effective, has it? If forced to choose between more egalitarian policies that would increase demand going forward, and a militarism that would present the allure of preserving existing inequalities and hierarchies of power, while employing people within the military and armaments plants, which one do you believe that the elite will choose?

Labels: American Empire, Credit Crunch, Death of Detroit, Global Recession, Imperialism, Neoliberalism, Sub-Proletarianization of America, Unions, War