Can The American People See Their Black Hole?

Posted by admin on February 26, 2009 in borrowing, depression, recession | Short Link

I am starting to wonder if the American government needs a torch. They seem unable to spot the black hole into which they are pouring money. They ought to use a BIG torch!

In the face of enormous competition globally, a slowing market and what appear to be many internal problems, GM keeps losing money. The US government has already “assisted” to the tune of $13.4 billion since 31st December, and these figures -

GM reports massive quarterly loss

suggest that more will be required. Lots more.

This is a financial black hole into which tens of billions of dollars could be poured for an undspecified period of time. The money, obviously, is being borrowed and so there will be an interest charge as well.

I fully understand that jobs need to be preserved where possible, and I have also heard that GM is a pretty big employer. These facts have not escaped my attention.

However, at what point will rational support be removed? And, at what point will the American people have spent enough money propping up GM before they simply cannot afford to stop for fear of losing all that has gone before?

These are classic questions that any private investor or entrepreneur asks when helping a new or struggling business. Will the American people ask them as well?

Another question worth asking, is at what point will this create a totally false market on the NYSE in GM and other company shares?

I guess that the real issue is that the government cannot stop funding for fear that it will exacerbate the recession and may be a factor pushing the US into a full depression. I wouldn’t want to be the guy making that decision either…

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One Comment

  • Bruce says:

    Most of us don’t want to pour additional billions into a failed company. Let them die a natural death like the airline industry.

    Problem is, a bankrupted GM will lead to a failure of Chrysler and Ford since the car companies use the same parts manufacturer. Closing of the three US auto companies will result in the direct loss of a quarter of a million jobs and another 2+ million jobs tied directly to the auto industry including parts manufacturers, tire manufacturers, paint, cloth, electronics, dealerships, state and local tax revenues, etc, etc.

    My suggestion is that if we bail them out, the big three should merge, resulting in a smaller loss of jobs, hopefully a gain in operational efficiencies and the subsequent loss would be not nearly as bad as the loss of the industry.

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