Here’s an interesting post by Colin Twigg. The point he makes is a good one. As long as the government opens the purse strings, there will always be someone extending his hand for help - but here’s the problem: more often than not, handouts fail to provide the benefits they were supposed to deliver.
There is an additional problem. In the US, the Government coffers are empty. So, the handouts fuel the pressure on inflation. In chart 1, we see the situation with the M1 cash in circulation plus total reserves. The higher reserves will pressure M3 money supply and thus put pressure on inflation.
Chart 1 St. Louis Fed’s Adjusted Monetary Base
Chart and commentary courtesy of Shadow Stats (Oct 26 Flash Update).
Add this fact to Colin’s main point that propping efficient industries only leads to greater problems and you have a scenario building for turmoil in the making in 2009. What effect will rising rates (brought about by the higher inflation) have on the struggling industries?
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Detroit Deja Vu
Speaker Nancy Pelosi and Senate Majority Leader Harry Reid recently sent a letter to Henry Paulson urging him to use funds from the Troubled Asset Relief Program (TARP) to rescue the big three automakers. Barack Obama has also hinted that he favors a taxpayer rescue (WSJ.com).
It is a sign of the times. The Australian government recently announced a $6.2 billion rescue package for their struggling automotive industry (Canberra Times). But I feel that I have seen this all before.
The past does not repeat itself, but it rhymes.
~ Mark Twain
British Leyland
Roll back the clock to 1975 when British Leyland was the largest automaker in the UK. Manufacturing 40 percent of all vehicles sold in Britain, the company boasted such famous marques as Jaguar, MG, Rover, Landrover, Triumph, Morris, Austin and the iconic Mini. However, BL was poorly run and over-staffed, with ageing manufacturing plant in nearly 40 different locations across Britain. No cohesive marketing plan and no provision for replacement of outdated models meant a struggle to compete with international brands. Then serious problems with trade unions made the company a by-word for Britain’s industrial relations troubles of the 1970s. Frequent strikes, work stoppages, and mass walkouts — including more than 500 walkouts at their largest Midlands plant — brought the company to its knees.
Faced with the loss of one million jobs, Harold Wilson’s Labour government agreed to a £2.4 billion bail-out. The government had entered the automotive business. Rather than recovering, BL continued to struggle until the arrival of new management in 1977. Sir Michael Edwardes was appointed Chief Executive and came close to shutting the company down, before splitting up and selling off the various divisions — with support from the newly-elected Margaret Thatcher.
Austin Rover was eventually sold to BMW, who later on, sold it for the historic sum of £10. (BBC and Wikipedia)
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