Monday, March 30, 2009

GM and Washington - Finally an "Adult" Response

I just finished listening to President Obama’s speech regarding the auto industry and I found it refreshing compared to the rhetoric that has been dealt us up to this point. It sounds to me as though we are headed for a pre-packaged bankruptcy for GM with the government standing in as the DIP financier. This is what I thought should have happened in the first place, but I think the last administration kicked the can down the road. Thankfully, down the road was an adult who picked up the can to begin cleaning up the mess.

Of course this will mean some disturbing things, especially for union employees. In particular, this probably means lower wages and cuts in benefits to both employees and retirees. Even if bankruptcy is avoided the stakeholders are now under intense pressure to give up ground. It’s hard to see how we get back on track when we cut wages – this doesn’t help stimulate aggregate demand. In fact it enforces the deflationary momentum. (Hold on, I need to mute the television. That Kudlow guy is on making some noise about this. How is he still a commentator on CNBC after being dead wrong about almost everything over the past couple of years? Goldilocks economy my a$$.) Anyway, I am encouraged that the administration is taking what I consider to be the correct position on the automakers even though there is downside on the wage front. The entire mess brings the issues of trade front and center, and I expect this will be one of the most difficult dances for us to do. Is it too late to stop pushing the US down to a Global wage or can we somehow reverse this trend at a time when we need the world to finance our bailouts? Any thoughts?

Stay tuned.

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1 comment:

Anonymous said...

Seriously, Kudlow needs to be taken out back and beaten with John Maynard Keynes dolls.

He is crazy. When the S&P 500 falls over 50% from its high, Goldilocks has officially been gang raped by the three bears.

And mustard seeds....more like CDO stink nuggets that won't flush.