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The stimulus is a good plan in my opinion. Where is the money coming from the answer ofcourse is printing more of it. It has the risk of devaluing the dollar but in practice it wont atleast in the short term because people aren't spending enough money so the amount of money in circulation is actually shrinking so increased money supply from Govt spending will still have less money flowing around then there was say 2 years ago so it wont be an issue until people stop hording their money when the immediate crisis is over.
Obama could pull something out I mean the most likely outcome is failure imo but what happens in the economy other than natural disasters is the product of policy. Policy caused it and policy can fix it.
If the car companies go under than thats pretty much GG.
Edit: Oh yeah tax cuts are bad they shouldnt be dont ATM. Tax hikes mostly cannot be done but the Bush tax cuts can be counter acted with out any negative economic affect, this would get the government something like 300 billion in the pocket.
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Don't worry about public sector debt at the moment, people say America has the most debt in its history and its all terrible but by relative measure in 1950 America had twice the amount of public debt than it has today and this turned out not to be an issue even though people at the time were crying the sky is falling in.
In 1950 America's public debt was backed by the nation possessing half the world's manufacturing capacity and being the foremost creditor nation. There's nothing substantial to back American debt today. High debt levels can be maintained on the premise that the nation will eventually be able to repay it through its savings. Does anyone see America in that scenario for the next decade or two?
The stimulus is a good plan in my opinion. Where is the money coming from the answer ofcourse is printing more of it. It has the risk of devaluing the dollar but in practice it wont atleast in the short term because people aren't spending enough money so the amount of money in circulation is actually shrinking so increased money supply from Govt spending will still have less money flowing around then there was say 2 years ago so it wont be an issue until people stop hording their money when the immediate crisis is over.
Money in circulation isn't shrinking, quite the contrary. It's expanding at unprecedented rates. Drying up credit is a signal to people that they are overspending, and need to recreate credit through saving. Saving, not printing, is the historically viable way to create credit, which is only possible if consumers retrench, and reduce their consumption.
The trend of overspending in the last decade was created by the appreciation of price bubbles, which created the illusion of economic growth, while that value was not backed by increased productive capacity. The sooner we discard the illusion that such trends are sustainable the sooner our recovery will be. The notion that debt is capable of creating wealth is completely fallicious in the long-term, and only works as a short-term expedient, and given the long-term pressures on debt and inflation, even that is a questionable expedient.
Postscript:
Expansion of the Monetary Base during the present recession (the total of physical money circulating in the economy)
Expansion of the MZM (the total value of immediately redeemable assets)
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I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years.
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Failed companies should die. You can demonize survival of the fittest all you want. For competition to work, failure have to die. The skilled workforce isn't disappearing. It will reorganize.
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On January 27 2009 22:17 MoltkeWarding wrote:
I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years.
There would be no more American factured cars.
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On January 27 2009 22:25 Boblion wrote:Show nested quote +On January 27 2009 22:17 MoltkeWarding wrote:
I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years. There would be no more American factured cars.
Biggest lie ever. Plenty of "foreign" companies have huge manufacturing programs in the US, while the "Big 3" have many factories and production facilities in other countries.
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On January 27 2009 22:36 theonemephisto wrote:Show nested quote +On January 27 2009 22:25 Boblion wrote:On January 27 2009 22:17 MoltkeWarding wrote:
I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years. There would be no more American factured cars. Biggest lie ever. Plenty of "foreign" companies have huge manufacturing programs in the US, while the "Big 3" have many factories and production facilities in other countries.
I mean "American" brand, decision making and technology dude.
I know that all those firms have factories abroad -.-
Anyway i don't care, i'm not American.
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United States22883 Posts
On January 27 2009 22:36 theonemephisto wrote:Show nested quote +On January 27 2009 22:25 Boblion wrote:On January 27 2009 22:17 MoltkeWarding wrote:
I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years. There would be no more American factured cars. Biggest lie ever. Plenty of "foreign" companies have huge manufacturing programs in the US, while the "Big 3" have many factories and production facilities in other countries.
They're paying US employees but the profits are still being held an invested into another country. Ford and GM are doing well in Europe and Asia, but America is still the market they depend on.
It's a widespread problem because Ford and GM are not isolated companies. Many of their part suppliers and other ancillary companies are shared by other companies, but still depend on their existence. When those companies die, Toyota and Honda will have to start importing parts and their own resource pool will shrink dramatically, so their American prices will go up. Toyota and Honda, who btw are protected enormously by the Japanese government, do not want to see them fail either.
When vehicles like semi-trailers or even post office trucks need repairs and specialized parts, there will be a very limited supply and long wait list to receive them. American research firms and universities that are specializing in alternative energy are going to lose boatloads of money, because the auto industry is really the catalyst behind their growth. GM has 20 billion dollars in assets, but it doesn't mean there's actually a market for them, and with the state that banking is in right now, you can't assume the industry will just re-start itself.
The current estimates for job loss are only for those working at the companies and their main suppliers. If you extend it to all the industries indirectly connected to the auto industry, the total job losses will be much greater, and it'll be white collar and blue collar. The reach is really quite absurd. When the company working on new methods of light diffusion and damage resistance for windshields starts losing money, you'll see it in the price of your Oakleys.
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United States22883 Posts
On January 27 2009 22:42 Boblion wrote:Show nested quote +On January 27 2009 22:36 theonemephisto wrote:On January 27 2009 22:25 Boblion wrote:On January 27 2009 22:17 MoltkeWarding wrote:
I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years. There would be no more American factured cars. Biggest lie ever. Plenty of "foreign" companies have huge manufacturing programs in the US, while the "Big 3" have many factories and production facilities in other countries. I mean "American" brand, decision making and technology dude. I know that all those firms have factories abroad -.- Anyway i don't care, i'm not American.
What do you think would've happened if the French government let Peugeot fail?
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On January 27 2009 23:13 Jibba wrote:Show nested quote +On January 27 2009 22:36 theonemephisto wrote:On January 27 2009 22:25 Boblion wrote:On January 27 2009 22:17 MoltkeWarding wrote:
I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years. There would be no more American factured cars. Biggest lie ever. Plenty of "foreign" companies have huge manufacturing programs in the US, while the "Big 3" have many factories and production facilities in other countries. They're paying US employees but the profits are still being held an invested into another country. Ford and GM are doing well in Europe and Asia, but America is still the market they depend on.
I don't really think it's a problem that the profits are "going to another country". The companies are still obviously investing in America (not right now, but no on is investing in anything), buying plant, equipment, and capital to be used here by American workers.
It's a widespread problem because Ford and GM are not isolated companies. Many of their part suppliers and other ancillary companies are shared by other companies, but still depend on their existence. When those companies die, Toyota and Honda will have to start importing parts and their own resource pool will shrink dramatically, so their American prices will go up. Toyota and Honda, who btw are protected enormously by the Japanese government, do not want to see them fail either.
When vehicles like semi-trailers or even post office trucks need repairs and specialized parts, there will be a very limited supply and long wait list to receive them. American research firms and universities that are specializing in alternative energy are going to lose boatloads of money, because the auto industry is really the catalyst behind their growth. GM has 20 billion dollars in assets, but it doesn't mean there's actually a market for them, and with the state that banking is in right now, you can't assume the industry will just re-start itself.
The current estimates for job loss are only for those working at the companies and their main suppliers. If you extend it to all the industries indirectly connected to the auto industry, the total job losses will be much greater, and it'll be white collar and blue collar. The reach is really quite absurd. When the company working on new methods of light diffusion and damage resistance for windshields starts losing money, you'll see it in the price of your Oakleys.
Yes it's complicated, yes it'll hurt, but no, that doesn't mean that US car companies (or any company or individual) should be protected from the consequences of it's actions. The car companies made some dumb decisions and deserve to take hits, to either be forced to reorganize, sell-off, shrink, or something. The main question in my mind is not about whether they should fail, but when, as we can all agree that we would rather see the kind of restructuring that needs to take place in the auto industry take place during slightly nicer times.
This means that we're probably going to need to give them some sort of a second chance, but I don't believe that we can just assume that they're "too big to fail" and work from there.
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It's not even an economic question really, it's a moral one. If I run a business and my business is losing money, do I have a right to take your money to keep my business afloat. Of course I don't, but people treat government as this holy entity that is not subject to the same moral and legal constraints as the rest of society.
That said, the stimulus plan is going to be a disaster economically as well.
Failed companies should die. You can demonize survival of the fittest all you want. For competition to work, failure have to die. The skilled workforce isn't disappearing. It will reorganize.
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The british car industry was sold out long ago, but they still produce some fine cars. That this solution wouldn´t work in France seems clear. But the americans always propagated the free market .
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On January 27 2009 23:14 Jibba wrote:Show nested quote +On January 27 2009 22:42 Boblion wrote:On January 27 2009 22:36 theonemephisto wrote:On January 27 2009 22:25 Boblion wrote:On January 27 2009 22:17 MoltkeWarding wrote:
I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years. There would be no more American factured cars. Biggest lie ever. Plenty of "foreign" companies have huge manufacturing programs in the US, while the "Big 3" have many factories and production facilities in other countries. I mean "American" brand, decision making and technology dude. I know that all those firms have factories abroad -.- Anyway i don't care, i'm not American. What do you think would've happened if the French government let Peugeot fail?
Well the governement never helped Peugeot with huge refunds like yours did with Ford and Gm.
They had to cut on jobs through the 80's and the 90's ( after the merging with Citroën and Chrysler-Europe ) and to relocate their factories abroad ( mostly Eastern Europe ) to get new markets and a better productivity but there are still some factories in France + all the test and design centers.
Moreover Renault and PSA ( Peugeot + Citroën ) had really good results until recently ( the situation has deteriored for 2 years ) and Renault managed to merge successfully with Nissan.
They also have manufactured several "classic" models like the 205, 206 ( most solds model in Europe with the "golf" i guess ) so they are definitly EV+ for GPD.
Without those firms our balance of trade would be way worse ( it is already quite bad lol ) and we would have to buy more foreign cars ( actually around 50% of the cars in France are made by Renault or PSA ) + the foreign manufacturers don't have their factories here except for Toyota so this means less jobs.
However the shares price, results and expectations have collapsed since the beginning of the crisis. I don't really know what will happen ( probably cuts on jobs again ), but they are still in a way better situation than GM.
Oh and no PSA means no 206 / C4 WRC
+ Show Spoiler +
edit: i think that people often forget that "government help" can be seen as an investment for the future.
I don't really know if it is worth all those billions though.
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United States22883 Posts
On January 28 2009 00:14 theonemephisto wrote:Show nested quote +On January 27 2009 23:13 Jibba wrote:On January 27 2009 22:36 theonemephisto wrote:On January 27 2009 22:25 Boblion wrote:On January 27 2009 22:17 MoltkeWarding wrote:
I also don't understand why the demise of Ford and GM would be such a catastrophe. If Ford and GM are forced into bankrupcy, their assets would be sold off and reorganized. Many people would lose their jobs, but the auto industry would be able to start with a clean slate, and not be forced into corporate welfare for the next God knows how many years. There would be no more American factured cars. Biggest lie ever. Plenty of "foreign" companies have huge manufacturing programs in the US, while the "Big 3" have many factories and production facilities in other countries. They're paying US employees but the profits are still being held an invested into another country. Ford and GM are doing well in Europe and Asia, but America is still the market they depend on. I don't really think it's a problem that the profits are "going to another country". The companies are still obviously investing in America (not right now, but no on is investing in anything), buying plant, equipment, and capital to be used here by American workers. Show nested quote +It's a widespread problem because Ford and GM are not isolated companies. Many of their part suppliers and other ancillary companies are shared by other companies, but still depend on their existence. When those companies die, Toyota and Honda will have to start importing parts and their own resource pool will shrink dramatically, so their American prices will go up. Toyota and Honda, who btw are protected enormously by the Japanese government, do not want to see them fail either.
When vehicles like semi-trailers or even post office trucks need repairs and specialized parts, there will be a very limited supply and long wait list to receive them. American research firms and universities that are specializing in alternative energy are going to lose boatloads of money, because the auto industry is really the catalyst behind their growth. GM has 20 billion dollars in assets, but it doesn't mean there's actually a market for them, and with the state that banking is in right now, you can't assume the industry will just re-start itself.
The current estimates for job loss are only for those working at the companies and their main suppliers. If you extend it to all the industries indirectly connected to the auto industry, the total job losses will be much greater, and it'll be white collar and blue collar. The reach is really quite absurd. When the company working on new methods of light diffusion and damage resistance for windshields starts losing money, you'll see it in the price of your Oakleys. Yes it's complicated, yes it'll hurt, but no, that doesn't mean that US car companies (or any company or individual) should be protected from the consequences of it's actions. The car companies made some dumb decisions and deserve to take hits, to either be forced to reorganize, sell-off, shrink, or something. The main question in my mind is not about whether they should fail, but when, as we can all agree that we would rather see the kind of restructuring that needs to take place in the auto industry take place during slightly nicer times. This means that we're probably going to need to give them some sort of a second chance, but I don't believe that we can just assume that they're "too big to fail" and work from there.
It's not just 5+ million jobs you're sacrificing, it's decades worth of prosperity for the sake of a liberalism ideal. This isn't Atlas Shrugged.
It's a problem that the money is held elsewhere because they can simply leave the market when it becomes too costly. When Japanese heavy industries start to fail (which they are, Nippon Steel just announced a massive production decrease) the companies will begin to contract and they won't be contracting towards the US. Free market? Yes, but the free market is a theory that isn't executed anywhere. Not in the US and not in Japan. Toyota and Honda offer excellent cars at an extremely competitive price in the US, meanwhile non-Japanese cars face enormous premiums on Nippon. Senators in Kentucky and Alabama hate the bailout because they want Toyota to do well in their states, but they don't realize they're going to get fucked if those companies go down as well.
Ford and GM go down -> Most domestic suppliers go out of business -> Toyota/Honda face massive supply shortage, and either cut production further (cutting more jobs) or start importing parts -> supply importation drives prices up and sales to go down, which means they'll halt expansion and probably remove domestic production since they'd be importing so many of the parts anyways, and it makes more sense to just import the car.
Plants that make diesel trucks are already starting to close, Honda just announced it's cutting production in US/Japan, Toyota is about to start cutting jobs in the US/Britain, Mitsubishi is suspending its plants in Illinois.
This is a classic example of why Congress has abysmal approval ratings. Everyone loves their own congressmen and women, they just hate the rest of them. How many tens of billions of dollars have been given towards agriculture subsidies for Iowa, Oklahoma, etc. in the past decade? My bet is it's over 100 billion.
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On January 28 2009 02:48 Jibba wrote:
It's not just 5+ million jobs you're sacrificing, it's decades worth of prosperity for the sake of a liberalism ideal. This isn't Atlas Shrugged.
It's a problem that the money is held elsewhere because they can simply leave the market when it becomes too costly. When Japanese heavy industries start to fail (which they are, Nippon Steel just announced a massive production decrease) the companies will begin to contract and they won't be contracting towards the US. Free market? Yes, but the free market is a theory that isn't executed anywhere. Not in the US and not in Japan. Toyota and Honda offer excellent cars at an extremely competitive price in the US, meanwhile non-Japanese cars face enormous premiums on Nippon. Senators in Kentucky and Alabama hate the bailout because they want Toyota to do well in their states, but they don't realize they're going to get fucked if those companies go down as well.
Ford and GM go down -> Most domestic suppliers go out of business -> Toyota/Honda face massive supply shortage, and either cut production further (cutting more jobs) or start importing parts -> supply importation drives prices up and sales to go down, which means they'll halt expansion and probably remove domestic production since they'd be importing so many of the parts anyways, and it makes more sense to just import the car.
Plants that make diesel trucks are already starting to close, Honda just announced it's cutting production in US/Japan, Toyota is about to start cutting jobs in the US/Britain, Mitsubishi is suspending its plants in Illinois.
No prosperity is being sacrificed, it's for the good of the economy and of society as a whole for government (i.e the taxpayer) to not bail out these companies. Yes jobs will be lost and that's unfortunate, but their jobs are being cut for a reason. People don't want to buy cars right now; it isn't fair to force people to prop up failing companies. Bailing them out won't increase demand for cars, it just allows unproductive companies to leech off society when society is demonstrating through consumer choice that they don't want to buy from these businesses.
It's no different than when a restaurant goes out of business. If a restaurant is failing should the government bail them out? Afterall, if it goes under then everyone who worked there will lose their job. And of course no one likes to see people lose their jobs, but the restaurant is going out of business because people don't want to eat there. It doesn't make any moral or economic sense to take money from people so that this restaurant which is losing money can stay in business.
You might argue that a big company like Ford or GM going under would be alot more devastating to the economy since so many jobs are at stake, but economic principles do not change based on numbers.
Failing business are the consumers way of saying that the resources invested in such a business could be more effeciently allocated elsewhere.
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Guys, if the big 3 go bankrupt, they aren't liquiding all their assets--they'e going into chapter 11 restructuring. The car companies will be around for quite a long time after that, and they still will make more cars. The main difference is that they will have legal obligation to actually turn around their infrastructure to make a profit. Not a bad situation in the long term, but yes, in the short term, jobs will be lost and car workers will lose a lot of their benefits.
And Choros, you're equating expansionary monetary policy with no substantive growth. Thats simply not the case. The world is shifting to a much more complex economy where manufacturing, for a lot of countries, isn't the primary source of growth and services become the primary export. Expansionary monetary policy and the laxing of a lot of outdated restrictions both created and resulted from this trend. I mean you could argue that services really have no value, but look at the difference 30 years ago and today. You have access to the open market with the click of a mouse, you actually have customer support when you have an issue with your big screen/computer/whatever, you pay your bills by logging into an online account, and so on. The expansion of services available is a direct result of the increased liquidity created from expansionary monetary policy. The world has come to a point where people's preferences change a lot faster than the government/fed can adapt to it, so why not let cold hard cash do the speaking for the people?
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United States22883 Posts
On January 29 2009 14:37 SmoKing2012 wrote:Show nested quote +On January 28 2009 02:48 Jibba wrote:
It's not just 5+ million jobs you're sacrificing, it's decades worth of prosperity for the sake of a liberalism ideal. This isn't Atlas Shrugged.
It's a problem that the money is held elsewhere because they can simply leave the market when it becomes too costly. When Japanese heavy industries start to fail (which they are, Nippon Steel just announced a massive production decrease) the companies will begin to contract and they won't be contracting towards the US. Free market? Yes, but the free market is a theory that isn't executed anywhere. Not in the US and not in Japan. Toyota and Honda offer excellent cars at an extremely competitive price in the US, meanwhile non-Japanese cars face enormous premiums on Nippon. Senators in Kentucky and Alabama hate the bailout because they want Toyota to do well in their states, but they don't realize they're going to get fucked if those companies go down as well.
Ford and GM go down -> Most domestic suppliers go out of business -> Toyota/Honda face massive supply shortage, and either cut production further (cutting more jobs) or start importing parts -> supply importation drives prices up and sales to go down, which means they'll halt expansion and probably remove domestic production since they'd be importing so many of the parts anyways, and it makes more sense to just import the car.
Plants that make diesel trucks are already starting to close, Honda just announced it's cutting production in US/Japan, Toyota is about to start cutting jobs in the US/Britain, Mitsubishi is suspending its plants in Illinois. You might argue that a big company like Ford or GM going under would be alot more devastating to the economy since so many jobs are at stake, but economic principles do not change based on numbers.
That's where you're wrong. It is possible to be too big to fail. I know it dashes the dreams of libertarians everywhere, but it can't happen and it's not going to happen. This isn't a new dilemma, the problem arose in the 1980s and some would say in the 1950s as well. We've never let it happen and we probably never will.
Here's a really good book written about it in 2004.
http://www.brookings.edu/press/Books/2004/toobigtofail.aspx
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This is by far my favorite thread on TL. I've changed my views a lot since I last posted here.
On January 27 2009 21:56 MoltkeWarding wrote:Show nested quote +Don't worry about public sector debt at the moment, people say America has the most debt in its history and its all terrible but by relative measure in 1950 America had twice the amount of public debt than it has today and this turned out not to be an issue even though people at the time were crying the sky is falling in. In 1950 America's public debt was backed by the nation possessing half the world's manufacturing capacity and being the foremost creditor nation. There's nothing substantial to back American debt today. High debt levels can be maintained on the premise that the nation will eventually be able to repay it through its savings. Does anyone see America in that scenario for the next decade or two?
Show nested quote +The stimulus is a good plan in my opinion. Where is the money coming from the answer ofcourse is printing more of it. It has the risk of devaluing the dollar but in practice it wont atleast in the short term because people aren't spending enough money so the amount of money in circulation is actually shrinking so increased money supply from Govt spending will still have less money flowing around then there was say 2 years ago so it wont be an issue until people stop hording their money when the immediate crisis is over. Money in circulation isn't shrinking, quite the contrary. It's expanding at unprecedented rates. Drying up credit is a signal to people that they are overspending, and need to recreate credit through saving. Saving, not printing, is the historically viable way to create credit, which is only possible if consumers retrench, and reduce their consumption.
This is irrelevant when banks aren't lending. I'm actually not sure how these numbers are related, but there is plenty of evidence that companies are having tremendous difficulty rolling over debt. Drying up credit can also be caused by pessimistic short term expectations that have nothing to do with the fundamentals of the economy. People do not invest according to the productive capacity of an economy, but on its actual rate of production. It seems to me that supply side theories largely dismiss the psychological factor. In fact, what the US is suffering from right now is a self-fulfilling speculative attack whose effects are very real, even if the basis of its growth has been largely unaffected. The market can't be counted on to recover on its own because these expectations seem to usher in a new mindset that functionally lowers the equilibrium point. So long as these expectations persist, credit will remain slow. Savings are useless if banks aren't willing to lend in the first place. While I believe such a policy is appropriate where business confidence is high and the only restriction to growth is limited capital, in this instance, a resurgence in demand must occur first if we want to move those savings where it's needed most.
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On January 29 2009 14:55 Jibba wrote:Show nested quote +On January 29 2009 14:37 SmoKing2012 wrote:On January 28 2009 02:48 Jibba wrote:
It's not just 5+ million jobs you're sacrificing, it's decades worth of prosperity for the sake of a liberalism ideal. This isn't Atlas Shrugged.
It's a problem that the money is held elsewhere because they can simply leave the market when it becomes too costly. When Japanese heavy industries start to fail (which they are, Nippon Steel just announced a massive production decrease) the companies will begin to contract and they won't be contracting towards the US. Free market? Yes, but the free market is a theory that isn't executed anywhere. Not in the US and not in Japan. Toyota and Honda offer excellent cars at an extremely competitive price in the US, meanwhile non-Japanese cars face enormous premiums on Nippon. Senators in Kentucky and Alabama hate the bailout because they want Toyota to do well in their states, but they don't realize they're going to get fucked if those companies go down as well.
Ford and GM go down -> Most domestic suppliers go out of business -> Toyota/Honda face massive supply shortage, and either cut production further (cutting more jobs) or start importing parts -> supply importation drives prices up and sales to go down, which means they'll halt expansion and probably remove domestic production since they'd be importing so many of the parts anyways, and it makes more sense to just import the car.
Plants that make diesel trucks are already starting to close, Honda just announced it's cutting production in US/Japan, Toyota is about to start cutting jobs in the US/Britain, Mitsubishi is suspending its plants in Illinois. You might argue that a big company like Ford or GM going under would be alot more devastating to the economy since so many jobs are at stake, but economic principles do not change based on numbers. That's where you're wrong. It is possible to be too big to fail. I know it dashes the dreams of libertarians everywhere, but it can't happen and it's not going to happen. This isn't a new dilemma, the problem arose in the 1980s and some would say in the 1950s as well. We've never let it happen and we probably never will. Here's a really good book written about it in 2004. http://www.brookings.edu/press/Books/2004/toobigtofail.aspx
I don't agree here. While the car industry and its suppliers do constitute a significant portion of American GDP, their collapse would be contained within the industry itself. Unlike with Lehman brothers, few other sectors of the economy are dependent on its survival. This may not have been true decades ago when the American economy was largely driven by manufacturing, but the service sector has far outpaced manufacturing by now. The only other scenario in which the loss of the car industry could significantly hurt the broader economy is if the financial sector had a lot of money placed in car companies, which doesn't seem to be the case. Anyway, any money they would've lost on these companies has probably been lost already.
Edit: (I always seem to have more to say after I post :\)
And you're ignoring the fact that in the long run, the cost for parts will reach equilibrium and any effect the collapse of the American auto industry has on foreign manufacturers will disappear. In fact, the money that was going into the auto industry before will now go somewhere more efficient, fueling long term growth. Finally, the collapse of the American industry creates opportunities for more foreign manufacturers to sell here, lowering prices because of competition.
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EPT![[image loading]](http://research.stlouisfed.org/fred2/data/MZM_Max_630_378.png)
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