Forced convergence of China and US

Borrow from China, ho ho!

Be interesting to see if Chinese methods of asset and debt recovery are as Dickensian and punitive as the UK's - or worse.

Take Taiwan as part-payment eg..mkj`

GC

Surely this crisis is just a convulsive step on the road towards China becoming the next world leader.

Thank heavens I have lived most of my life through "Pax Americana".

I don't agree with propping up anything from the old failed economy that was fast destroying the planet. I don't want the consumer decade reinflated. We need to build a smaller more efficient new economy out of cash flow and the low cost tools of the internet with NO BORROWING. I am someone who has never borrowed, never had credit cards, built my business slowly out of cash flow. I really resent that our government turned my country into a massive credit card.

These carmakers failed to design cars their customers want to buy, eg. they failed to adequately diversify their business models. Likewise, suppliers over-dependent upon a single customer also failed to adequately diversify. Finally employees who have poor alternative career prospects have also failed to adequately diversify.

This lack of diversity translates to inefficiency, which is being flushed out of the system by the credit crunch, and this is beneficial in the long run (although not terribly amusing in the short).

By propping up failing industries, government is propping up the inefficiency and thus prolonging and worsening its effects.

The fact that x million jobs are dependent upon the inefficiency is sad, however those affected have nobody to blame but themselves.

The reality is that government intervention is not possible on an ongoing, long-term basis, and thus if those jobs, companies and industries are going to survive, they must be self-sustaining.

They have had plenty of time to see all this coming, and have failed to act. Their best bet now is to evacuate their industry, before the liquidators move in, closely followed by the new, wiser owners.

What happens if China asks for the money back?

Where will the taxes come from to repay the loans to bailout these failed giants? From successful companies, who would be more successful if the billions of dollars going to GM & Co were to be invested in them.

Must be my logic that is at fault.

So much for 'de-linkage', then ! And for any idea that finance is somehow separate from the 'real economy'.

Another excuse for Gordon Brown to say "this started in America" ? Well, downturn in demand is suden, and pretty universal.

If i'm not mistaken General Motors has made most of its money in recent times through GMAC, its financing arm and therefore has made more money through banking than through car manufacture.

Am I correct in this assumption?

If so it helps explain GM's current financial predicament given the state of the finance industry worldwide.

I find the whole nationalisation thing in the US amusing in a morbid sort of way. The country that has railed against socialism for so long now becoming the world's leading socialist society. And having to borrow the money to achieve this from the world's supposedly biggest communist state simply adds to the delicious irony.

However, on the subject of bailing out GM, I think this has to be seen in a very different light to the banks etc. With the banks we've seen something of a chain reaction, with weakness in one bank leading to loss of confidence in the entire system, such that we came close to a total banking collapse according to the BoE Governor. That would have massive implications for virtually every individual, especially as the collapse could well have been global.

GM, however, whilst massive and having the potential to cause pain across a large number of its suppliers, would not cause a similar issue. Yes, GM fails, but that won't bring down companies such as BMW, Audi, Toyota, Honda etc, unlike banking where the Lehman's collapse directly led to the loss of funding lines to lots of other banks globally, followed by share price collapses for banks ranging from Goldman Sachs to HBOS. The banking crisis is one of condidence in a highly (over) leveraged industry. GM is close to collpase simply because it makes sub-standard, overpriced products that nobody wants to buy. GM has the wrong product line (gas guzzling SUV's for example), at a time of fears over long term fuel prices ($147/barrel oil remains in the memory long after the price has halved). Also, even Americans are now beginning to realise that global warming is a problem. GM and other US car makers woke up to this far too late. Their European and Japanese competitors have a better range of vehicles to meet this challenge already in production.

If we hadn't had the financial crisis, GM would still be in a mess now. Congress would still be looking to bail them out simply becuase of the numbers of voters involved, in competitive electoral States, and with union contributions to Democrat re-election campaigns to consider as well.

If I were George Bush, I'd bail out GM, thereby immediately placing a huge albatross round Barack Obama's neck. Bush will get praise for saving GM, Obama will get the blame for the inevitable future costs, eg the impossibility of ever getting rid of surplus labour. If Bush doesn't bail out GM, then if Obama has any sense he'll let GM go under, but try and broker a deal where foreign manufacturers (maybe even Chinese ones!) take over some production facilities and make better products. Simply rescuing a company that is failing because nobody wants the products it's making would be the worse possible start Obama could get off to. It would send out the message he's a soft touch for any outfit that shouts at him loud enough, ie he'll be governed by singe issue pressure groups rather than the other way round.

It was only a matter of time before US carmakers inability to make efficient cars to sell to the home market and the rest of the world would catch up with them.
The over manufacture of cars is a major problem does the world need all these cars?

I also wonder has no body see Mary Poppins Banks runs on banks?
A bit like the Americans in Tornado alley haven’t heard of the three little pigs.

Don’t underestimate the US’s ability to survive, if only Apple made cars.

Actually the Chinese are buying US assets because the US is their biggest export market and they need - now more than ever - to ensure their products are cheap. Buying bonds means USD goes up and RMB goes down. That simple, no "altruism" needed.

If they pull their loans, their economy slows down, civil uprest and the communist party either becomes repressive of old or gets overthrown.... Hands up those who think they'd rather lose money.

I'm sorry but if they can't produce a product that people don't want to buy, or more importantly, weather the storm ahead then that's surely their own fault.

However I don't think the whole industry will be wiped out without intervention; they will just have to reduce production, overheads and dividends and turn their attention to research and development, extension strategies and to try and be more competitive. Isn't that what any business is expected to do if they're aiming to succeed/make a profit.

I think if anybody in Europe looked at the range of model available to the American car buyer they would be quite surprised just how inefficient the vehicles they offer for sale are. Talk of the EU insisting on 130 g /km in the US! It is quite difficult to buy vehicles with less than double that figure (and similarly inefficient).

US car manufacturers are so out of touch with the reality of austerity that it seems almost unbelievable. This is quite apart from the problems of the car manufactures essentially being pension funds that make a few cars on the side. The consequence of these problems is that adjustment will be very painful for the US auto industry. The adage of when the auto industry sneezes the USA catches a cold may still apply. They should only be bailed out if there is a radical readjustment in their product ranges.(i.e. no more gas guzzlers and the USA should tax the inefficient cars off of the road.)

It is, on the wider position, interesting to note how similar the so called 'free market' and the 'socialist market' are becoming. Is this a good thing, or a bad thing? I don't know. The problem really is if that there is a structural failure in either system, such as the banking failure, the whole World collapses.

#4

"These carmakers failed to design cars their customers want to buy,"

Sorry but that's simple wrong, well it was true about 20 years ago, but since then US car makers have been making much the same sort of car as are made in the Far East or Europe - indeed Ford and GM are (more or less) using some of the same 'chassis' as their European devisions - the problem is simply that people in the US are not buying anything like the number of cars that these big companies need to shift each month.

The problem, as RP points out, is not allowing GM or Ford to fail but what effect it would have on the rest of the economy, allowing GM to fail could tip the US from recession into depression due to the knock-on effects in the wider economy. Detroit would be a ghost town...

The US makes bad cars.

Despite the success, and the example of Toyota and Honda, US manufacturers have continued to produce gas guzzling, ugly, badly made, technically outdated cars. Little wonder that consumers have bought fewer and fewer of them.

GM, Chrysler and Ford are not only caught in a time warp, they have an unsustainable level overheads and a creative block. They cannot continue in their present form. To keep them alive is probably a mistake.

I think it's inevitable that China will become the West's rescue for the sake of the world economic health and its own economic growth. China's huge foreign reserves will start to bargain hunt cheap options in Europe especially UK assets as there are so much fuss and political juggling in US for Chinese soverign fund real assets investment in the past, in the next few months Chinese sovereign fund and Chinese banks will start to take up UK and European assets, I think in the next week or two, we will know that Bank of China will have HBOS as its foot holder in the UK financial industry, then next will be UK's struggling housing builders, the likely target will be Taylor Wimpey as Chinese soveriegn fund knows quite well the limited nature of available housing development land and the huge shortage of afford housing in UK which the UK government predicted nearly 2.5 million new homes in the next decade, therefore the value of land bank stocks of Taylor Wimpey and other UK housing builders will be self-evident and will have a huge returns in 2-3 years time. Also Chinese sovereign fund investers are quite smart and quick to sense the the true values of land bank and housing properties as tangible solid assets and much reliable than pouring money into US treasury bill.

To all those calling for business to left to go to the wall...

I agree with the theory, but are you prepared for the civil commotion or even civil war that would follow?

Remember that the Great Depression came soon after the Great War when the appetite for direct action was not there. [As were many of the young people who could fuel it.]

Not so today. Civilisation is only a veneer.

We are seeing a tipping point in World power. No amount of money or state help will change it in the long run. But how the transition is managed will decide if our children remember it as just an economic upheaval or something worse.

This is the slippery slope, Robert.

Once the US Govt has started supporting an individual company like this, it cannot stop, and this will lead to huge distortions and inefficiencies in the industry affected. Other companies in the same market who have acted in a more far sighted way, who have better products, will be seriously disadvantaged.

GM should be put in Chapter 11, where many US airlines have been over the last few years, and work its way forward from there.

An extension of the 'too big to fail' policy from banks now to the auto industry, moving on to whatever next, really does signal the end of the US as the economic superpower.

So, what are the Gov'ts plans to rebuild Britains manufacturing base ?

Without a good plan we are going to see our exchange rate spiral downwards......

Our economy needs to be rebalanced.

Without rebalancing we are going to be faced with stagnation and high imported Inflation.

It would, be useful to give the Public sector a proper pay rise (all the public sector not just the popular bits or just MP's).

With Inflation running at 7 - 12 percent depending on what you spend your income on, a general pay rise of ten percent to the Public sector as a whole, would boost the economy.

And as Public servants are amongst some of the lowest paid, it would reduce poverty and hardship at a time when many households main earner (in the private sector) may be losing his job!

A lot of Public sector workers are women, their incomes help their households, especially if their husband can't get a job !

So Mr Brown, if you genuinely wish to address social hardship, do something for your own staff!

You could of course create more market confidence in the Stock market, by actually compensating the Shareholders of Northern Rock and Bradford and Bingley for the confiscation of their companies.

A couple of radical ideas for a Wednesday.

Surely it's the case that China and the Middle East have a big heap of money tucked away from America's post-war economic system and lifestyle choices.

You're right, Robert (as ever), in identifying that America has been living in credit card borrowings and then insanely consolidated into corrupt mortgages founded on a whipped-up housing market. You can only defy gravity for so long. Eventually, reality arrives, the bill comes in and there isn't enough money. It happens with individuals, it happens with countries too.

Question is: where now? Unless the Chinese and Arabs fund the cash shortfall while the American economy weans itself off living on false values, the in-built and spring-loaded distortions of the status quo will unwind at an unsustainable rate. Without hyperbole, the outcome could only be wreckage on a mass scale.

I think the Chinese and Arabs see that and will wind up owning large chunks of America, even more than they already own. The return on their investment is the price that will be landed on next-generation Americans. Pity them.

#12

"I think if anybody in Europe looked at the range of model available to the American car buyer they would be quite surprised just how inefficient the vehicles they offer for sale are."

You need to compare like with like, European cars have always been more efficient that those in the US but if you compare cars models from the 1960s with current models in either the US or the EU you will see that both sectors have become very much more efficient - that's not to say the US could not do more, but it's not what is stopping people in the US buying cars. Lets face it many in the US are still totally blind to Climate change!

5. joeplumber wrote:
What happens if China asks for the money back?

USA will simply print the money (at the sacrifice of having an hyperinflation) in order to pay back China.

#13

Detriot IS a ghost town ...it just doesn't realise it yet!

The World has entered a tailspin into a recession closest in size and shape to that of the early 1930's ...according to Ken Clarke on this morning's Today Programme.

The trouble with bailout rescues whether of banks, housing markets or jurassic car manufacturers is that they only work when the bottom, or near bottom of the recession has been reached. This recession hasn't reached first base...yet.

Actually the Western model of free market economy can only work if there is a level playing field between countries.

No level playing field no chance.

At some point protectionist measures will be introduced, it may not be this year or next, but eventually that will be the course of action taken.

Hows Santander getting on with the Spanish property crash ?

They were partners with RBS on the takeover too far of ABN Amro..........

They also seem to be spending lots on adverts to reassure people that they are great !

I guess they are getting nervous, perhaps with good reason !

Hate to say it, but aren't the US Federal Govt just 'propping up a lame duck industry'. It'll end in tears. Shouldn't the Fed be focusing on regenerating these geographical areas that will be mostly effected by the downturn in its automobile industry. They could relocate some Govt jobs into these areas for example.

Another problem for the car manufacturers the world over (in general) is that their products are too good. Cars these days do not rust, they do not fail. I have an 8 year old Renault with 110,000 miles on the clock which still runs perfectly. So why do I need to waste 18,000GBP on a new one? It will not do anything that the old one cannot already do. So now that the credit supply has diminished people can quite easily continue to use their old vehicles and concentrate on making savings eslewhere too. Too many products are available today that we just don't need.

Thinking of property crashes, which Housebuilder will be the first to go bust ?

If prices go much lower, and if they continue to be unable to sell sufficient Houses, (and sales are thro the floor) then there will be bankruptcies..........

#18

"You could of course create more market confidence in the Stock market, by actually compensating the Shareholders of Northern Rock and Bradford and Bingley for the confiscation of their companies."

Or the complaining share holders could just accept that both companies were heading for (if not already in) bankruptcy and thus they would have lost their investments anyway. Of course had the shareholders given more thought as to how the company(s) was being managed rather than just gloating on how large the divs were...

Dear Robert

This is Socialism at work, sorting out Capitalism and Globalisation, and a Banking system that still runs not for the masses but a select few.
Non of the Major players in the world of Finance will loose a penny, already money from the tax payer is being hoarded to financ their losses, and in any case the mass of this money is only paer agreements any way.

So the US car industry needs a bail out because they continue to design and build cars to sell in the US which are a generation behind the cars they design for Europe and other markets. Daimler Chrysler used the platforms of the outgoing Mercedes for the next generation of Chrysler cars as they were still more advanced than a typical US car. With such wonderful offerings from the US manufacturers is it any surprise that the consumer buys European or Japanese where the same car is on sale in Europe and the US?

It seems that the US tax payer is being asked to foot the bill for deceades of mis-management. It's difficult not to draw parallels with the British car indstry but at least in the UK there was the excuse that everything was nationalised and then run for political ends.

As for China, wait until China decides to liberate Taiwan and threatens a run on the dollar if the US intervenes - just like the US did to the UK at Suez..........

One has to ask at one point does the lunacy stop and dark reality hit home?

Propping up car manufacturers who have products that nobody can now afford and, more to the point, don't need is yet another attempt to deal with a symptom of the malaise and not the cause.

The reality is that the American economy - like the UK's - was an illusion, one sustained only through ever more imaginative forms of borrowing which masked the growing gap between actual earnings and the real cost of living. Turn off the credit tap and the whole edifice collapses.

There will soon come a point when the US will be incapable of paying of its debts, at which point the dollar will be valueless. The likelihood is that they will then pursue protectionist policies, which would put it on a collision course with China.

Dark times indeed.

BLOG 3 wrote
"We need to build a smaller more efficient new economy out of cash flow and the low cost tools of the internet with NO BORROWING. I am someone who has never borrowed, never had credit cards, built my business slowly out of cash flow...."

Fortunately for you your customers DID borrow money and use credit cards or your business would not have grown ! The time to boast how successful you are in growing a business without borrowing is how well you come through a downturn. Anyone can grow during a boom. Its going to be very tough for all, especially small business during the current downturn

My own business is solely based around internet sales and whilst I agree "too much was lent by too many, to too many" boy I am glad that some people do use card payments or I too would be asking for a state handout in terms of unemployment benefit !

As you suggest we use the low cost tools of the internet to grow a sustainable economy, I would be interested in you views on just how we do this without internet card or cashless payments ? AND don't forget (I speak in my previous guise as a senior shop steward in manufacturing for 15 years here) The internet and cashless sales are not available to the disadvantaged in society AND they cost jobs for all the high street shops and banks that close as a consequence, so its not that rosy a picture for those who would lose their jobs in your new economy.

The key now is to go back to the old ways of lending and borrowing, IE can you afford to lend and can they pay it back...not rocket science is it !

The internet will continue to take sales from the high street and it provides a new job opportunity for those willing to embrace it but only if it provides a service that cannot be obtained face to face just as easily. My own business has GROWN by 25% this year but that's down to high fuel prices making driving around shopping expensive and offering a quality through the letter box service. Of my own payments this year some 99.9%are card or other cashless payment, so long live the CC :-))

12 Wrote : It is, on the wider position, interesting to note how similar the so called 'free market' and the 'socialist market' are becoming

Totally agreed, It depends on the angle though

Are capitalists having to use socialist methodology to dig themselves out of this hole where they will retrench or are Governmnets deciding that the economics of over production creating the illusion of prosperity and therefore, over consumption is, in fact, dead.

The green revolution is seriously helping the latter, where people are getting used to recycling and taking stock of what they have and what they need and scalling their consumables back. Why buy that second car? Can I afford that second car?

The cost of supporting all the jobs made defunct , however, will be too big to succeed

#25 dceilar - You're right, however it just isn't the American way. Maybe they will change.

The population of Cleveland Ohio has nigh on halved since it's peak in the 1970's. Large tracts are laid to waste and family sized homes can picked up for a dollar. Imagine if that had happened to say Sheffield (possibly a comparable sized city)

From times gone by, there are lots of old ghost towns in the mid west / and further west where people just moved on. It seems as though it is not beyond the realms of possibility that the same could happen to some of the modern day major cities. It's a chilling thought.

If GM goes under I guess the rust belt has just expanded further into Illinois form Ohio and Pennsylvania.

I'm not a Marxist, but some of Marx' analyses were correct. The "crisis of overproduction" is a classic scenario.

In the old days, car manufacturers tried to get round it by planned in obsolecence. In 1986, I bought a brand new metro which was beginning to be a rustbucket by 1990. Then with keener competition, they couldn't get away with it any more. I bought a far better Metro in 1990 which lasted for 11 years. Then because of the sabotage of Rover by BAE, I switched to a Suzuki. That was an excellent car, but got written off in an accident. The car I replaced it with has low emissions, excellent safety equipment, and is very comfortable and well built. I am hoping to keep it for 10-15 years. With the best of modern cars, as with the old pre-war ones, there is no need for regular replacement. We need less car manufacturers: the economy must move on.

If technology can free us from drudgery, fine, but then the future must move away from wasteful consumption. We must find meaning in our lives that does not involve buying things and then trashing them. This will be very difficult as "empto ergo sum" (I shop therefore I am) is engrained in the modern psyche. At least, in the "West" it is; lets not forget those in South Asia and elsewhere who work long hours for a pittance just to feed the fripperies of our throw-away society.

Part of the cheap money that flowed in the good years was of course from Chinese surpluses, but people tend to overlook petrodollar recycling.

Since Nixon in the 70's cut a deal with the Saudis to denominate oil purchases in US dollars, the US has been living beyond it's means through OPEC recycling those dollars received for oil into the US economy via treasury bills.

This was long before the 'financial superhighway' was ever conceived. Frankly the US Government then, largely through Henry Kissinger and the other neo concervatives, knew the US economy was going to fall behind the East because of energy reserves, so they got their retaliation in first by forcing the world to purchase dollars for oil.

The US could essentially print money without providing a single good or service. It was the ultimate 'easy money' scenario.

Since then all of Reagan and Bush's (both of them) policies have been to keep US business at the top of the world at any cost, funded by petrodollar recycling and then later further borrowing from surplus economies.

It was always going to come to an abrupt end but up till now this obvious imbalance didn't seem to bother anyone.

It's a shame ordinary people in the US have to suffer from neo conservative world domination fantasies.

But then again they voted them in.

World wide deflationary depression - here it comes!!

For the umteenth time!

28 and 29

I know it is not popular to take the side of the Shareholders.

But the Shareholders are mainly our Pension Funds !

Bradford and Bingley had 800,000 small Shareholders with a few hundred Shares each.

And many thousands with a few thousand shares each.

Not millionaires, just people who believed they were being prudent and whose mistake was to trust highly paid, University educated professionals, who were supposed to be acting in their interest.

Obviously, Shareholders are being penalised for trust.

The stockmarket will continue to wither as would be investors stay away, knowing that the trust isn't there.

#4
And any others looking for a free-market solution (bankruptcy) to sort out the situation.

GM, in particular, has "seen how the wind is blowing" and placed a large bet on its Volt electric car - which has the potential to steal a march on the likes of the Prius.

https://en.wikipedia.org/wiki/Chevrolet_Volt

Yes, you could let GM go to the wall and then let Toyota or AN Other cherry pick just the Volt technology - but what gain is there in that for the US Gvt and taxpayer, when the best placed cherry-pickers are all outside the US?

It seems to me that it is in the US Gvt's interest, both in terms of strategic industrial planning and political expediency, to use any bail out as a transition period for protective restructuring of the industry.

Trouble is, if the banks are anything to go by, the moment Gvt cash gets given, comfortable complacency sets straight back in.

And, yes, when I write that, I am thinking in part of Andy Hornby's reported £60,000 a month, not to mention an earlier posting from a bank worker elsewhere on this blog, who seemed to think that bonuses are an automatic part of the pay package.

History shows you dont support bankrupt organisations, but let new ones thrive (we did that in old days eg in automotives british leyland), so business making goods/ services dont want should close and suppliers will need to find new markets - good old competition but prehaps all creditors should be paid by government (ie taxpayer). At least would stop snowballing of bad debts etc across whole economy

#28, amen. Capitalism is risk and reward. Shareholders in NRK were amply rewarded and now they are being punished for their bad investments.

I am still laughing at loud at Comment 18 that the answer to the economic woes we face is to give public sector workers a 10% pay increase!

Never mind that this feather bedded, non productive sector leeches off the back of people who actually do something for a living, and already gets paid more on average than the private sector (leaving aside the issue of their pensions, which the state cannot support) they now should apparently get even more!

What a great idea. Well done, I haven't laughed so much for ages.

Let the lunatics take over the asylum I say!

dceilar wrote:

Hate to say it, but aren't the US Federal Govt just 'propping up a lame duck industry'. It'll end in tears. Shouldn't the Fed be focusing on regenerating these geographical areas that will be mostly effected by the downturn in its automobile industry. They could relocate some Govt jobs into these areas for example.


No, I think the US govt is doing right by ensuring no US car manufacturer goes under. Unlike the UK govt which failed to protect MG Rover et al. It's really sad the UK has no home grown car industry to speak of. The UK has put most of its eggs in one basket (financial services) but we now know this will soon end in tears. The UK needs both financial services and manufacturing amongst other industries.

What is Obama thinking of?.

13, boiler plated.

Detroit already IS a ghost town, many jobs have been lost over the last decade. America is really knackered, this is going to be very bad methinks.........

Time for a MAJOR rethink on capitalism.....

laughingblacksheep wrote:

Actually the Chinese are buying US assets because the US is their biggest export market and they need - now more than ever - to ensure their products are cheap. Buying bonds means USD goes up and RMB goes down. That simple, no "altruism" needed.


The Chinese are not given a level playing field by the US govt. We are only allowed to use our SWF to purchase certain US companies, eg financial but not petroleum companies or those perceived to be related to national security or 'hi-tech'. If the US govt would only be less hypocritical and practice full capitalism as we all know it, the huge trade imbalance with China would be less of a problem for the US.

The car companies are all in the same boat even the like of Toyota and BMW have scraped their profits forcast. GM/Ford and Chrysler are the first to talk about going under because they are bloated and inefficient and during the credit boom of the last 5 years instead of investing for the future they have had to tackle the burden of the retiree programs. Also their domestic market was the first to start feeling the pain so we can expect European and Asian car manufacturers to follow as the Recession hits us.

The Problem of letting these companies fail is the knock on repurcusions of adding millions of people to America's welfare program, the reduction in Tax income for the US and the worsening of the recession as millions of employed consumers become unemployed and reign in their spending. This in turn will deepen the global recession as the demand for imports from Europe and Asia will weaken.

Andrew martin (3) I thought I was the only business genius out there.... growing a business out of cashflow not loans ? Hey now there's two of us ! I hate to call it the Chinese model though.... I thought it was the common sense model..... better known as get rich slow.... I can't help smile at the collapsing business angels and 'big hitters' who've bought up and developed the highly leveraged retail chains; citing 'Value' and 'Exposure' as the new currency. In The stampede Their MBA's and sharp suits stupidly forgot the fundamental basics of a fully costed product or service and the holy grail of effective pricing. What worries me is their idiocy now leaves businesses like mine in a much harsher environment, where I have to accept lower sales as people struggle around me. But Hey; good on you, keep it simple.... If everyone grew at our pace there'd be no debt and no credit crisis.. the problem is until the authorities stop highly geared lending, or at best set a standard ; the gamblers we co-exist with will continue to distort our reality....

Are we witnessing the Systematic Destruction and Appropriation of Corporate UK by the Unholy Trinity comprising the Banks, Hedge Funds and Private Equity?


Basically the process appears to be as follows:

a. BANKS reduce or withdraw funding to Corporate UK

b. HEDGE FUNDS attack and decimate share prices using their short selling strategies

c. PRIVATE EQUITY buys Corporate UK at knock-down prices

d. BANKS finance and support HEDGE FUNDS and PRIVATE EQUITY

e. LOSERS - UK Limited, Employees, Homemakers, Savers, Pension Funds, and Taxpayers.

f. LOSERS - The reputation of Government, FSA and the Bank of England at their apparent refusal to accept that any such Systemic Threat is directed at our economy.


It would be interesting to identify the volume of lending between BANKS and HEDGE FUNDS & PRIVATE EQUITY versus lending to Corporate UK.


Are my concerns reasonable?

Yes the irony is not lost on us, we Brits get it, unfortunately the majority of Americans don't and will therefore not see the funny side, this perhaps the real reason we are in this mess, plain stupidity.

While it's very tempting to blame the current crisis on the USA's free market model (and therefore implicitly endorsing the advantages of state control) - the real differences between the two economies (and hence the reason for the current mess) are cultural.

Westerners have become ever more decadent in their approach to personal finance. Easy access to credit meant that people consumed first and paid later.

The still recent memory of hardships, combined with a stronger sense of financial management, means that Asians are less likely to resort to credit to fuel their consumerism.

#20 Boilerplated

I agree that US cars now are more efficient than they used to be, however, notwithstanding the US (republican and democratic) blindness to climate change there is less money around and to be able to travel (or even live) in some parts of the US people need to be able to move about.

There is no reason at all that US auto manufacturers do not produce European cars with European fuel consumption, except of course their consumption model and innate resource profligacy.

The problem is for us all that the direct extra 3 million unemployed caused by letting the US car companies fail is just the time of the iceberg. Letting the car industry go may result in ten time that number of US unemployed and some in Europe too. Is this the price worth paying? It might be if the rest of the economy was recruiting, but I wonder if it is in today's circumstances.

#40

That method has been proved incorrect, Govt has to support native industries otherwise the country becomes just a large cold warehouse were economic pneumonia forms first - as the UK is finding out, we have been first in recession and if policies don't change we will be last out as the country relies on the economic well being of other countries...

One wonders what the US industry would have said if it was for example, Japan proposing to subsidize it's car industry to the tune of $50 billion (there is no doubt this sum could never be repaid). I am sure they would be rushing to congress/senate/WTO crying foul and demanding reparation.

The principles which Americans purports to hold dear would suggest that these businesses should be allowed to go to chapter 11 and the stongest bits survive to rebuild.
That any US administration is going to permit this seems highly unlikely, the prospect of Detroit in flames is unlikley to appeal and the workers are Obama's voters so he can't/won't cut them loose.
Bush can of course as is pointed out but even he's not that stup... well anyway probably won't happen.

If as a result of propping up failing businesses America get further towards fully realising its economic world view is plain daft and unbridled capitalism does not work then perhaps it is worth the price. It certain would be a Change We Need to pinch a phrase.

you can see why the us government villified the chinease so often start a conflict with then they can kiss there loans good bye it seems some one in the united states has been reading up on european history, for example the role of a certain french king who was in so much debt to a certain organisation he with the aid of a religious leader smashed that organisation just to save repaying his debt.

with the way the world's ecconomy is at this moment in time the people should remain vigilent to governments planning any sort of agressive stance as it will only take a small match to strike wider and more global conflicts.

and i for one dont like the thought of a world war three.

The house was built on sand.

Let it fall and build a new one on a foundation of Rock

That is a 2000 year old moral story that needs to be learned.

#18 supercalmdown Begging compensation for B+B and Northern Rock is a regular feature of your posts. But these companies have failed. In a proper model of capitalism, they should have just disappeared.

Shareholders would have still got zilch, unless there was a net surplus of assets AT THE MARKET PRICE THEN PREVAILING over liabilities. I know of no evidence that this is the case, au contraire for B&B.

The pension funds, at least in principle, know the risks they are taking. Small investors should not touch the stockmarket, except possibly with unit trusts, unless they can afford to lose the lot. I have a diversified portfolio of shares: they are not doing well, but I knew the risks when I bought in and didn't bet my shirt anyway. If the lot goes down the pan I will not be begging for compensation from HMG.

Clearly when it comes to "free trade" the Chinese have been much more successful than the West.

This imbalance is unsustainable and it represents a danger to both parties. The evolutionary analogue is when a predator species becomes much more successful than its prey species, resulting in the extinction of both.

The only solution is to reverse the process. But it seems that this can only be done if the West imposes a form of unilateral protectionism and the Chinese agree to go along with it.

Has human evolution, and particularly the evolution of political thinking, developed to the point where this is possible?

@7

Yes you are correct GM made most of its money through GMAC and GMAC were the greatest source of Sub-Prime Toxic debt that was sold on.

GM are probably the most to blame for the whole crisis.

#46. yangshanghai wrote:

"The Chinese are not given a level playing field by the US govt"

Neither are inward investors in China I recall conversations with a now major company several years ago that went like this. Can I buy some of your shares? Answer: No not unless you have permission of the Red Army.

The whole world protects to a certain extent. The major risk to us all is 'competitive protectionism', and whilst I agree that the USA has a bad tendency to protect its business I do hope that just because one country does it we all do not use it as an excuse to increase our own protectionism. If we do this (as may be inevitable-sadly) then this depression will be deeper and longer.

Why the hell is the dollar holding up so well?
How come fixed income investors(gilts, corporate bonds etc) are shunning the UK over the US (sales of these instruments in past 2 months account for a 75% net reduction from purchases in past 4 years, in the US this figure is only 15%)?
Is it because the govenor of our central bank talks down the UK economy and sterling at every opportunity he gets. The same person who insists for the past 12 months that inflation is a real and present danger then within the space of a month that in actual fact the real danger is deflation! Is this level of incompetance the real reason that investors are shunning the UK. Botched macro economic policy, botched monetary policy, botched fiscal policy. Perhaps they should try the lateral approach and actually try to bring about the collapse of the economy and the opposite might happen!

#42

re public sector pay

Not all public sector workers leach off others, of course if you think only in terms of civil servants you have a point indeed (!), many PSW have productive (but largely unmeasurable) employment in hospital/social care/local authority sectors - you would soon notice if your bin wasn't emptied, the streets unswept, the ill were left to die on the street or the mentally ill uncared for etc.

As for your last point, I think you'll find that they have been in control since the 1980s!...

.....talk about giving someone enough rope with which to hang themselves by!

This is akin to secretly financing your enemy to buy arms with which to attack you......hang on a minute!....weren't some US and UK banks involved in this sort of activity in Nazi Germany just prior to WWII???

History repeats itself...if only economically this time (so far!).

SuperCalmDown - post 18.

I appreciate the point you are making, but public sector workers are already bolstered enough by all other tax payers. You often mention pension funds - their superannuation schemes are subsidised by tax payers money, more so than ever now.

#35 Sashaclarkson

I'm not a Marxist, but some of Marx' analyses were correct. The "crisis of overproduction" is a classic scenario.

If my memory serves me right Marx also said that Britain would be the first country to experience revolution, or Communism. The reason given is that as it's the oldest Capitalist economy it will face newer problems before the other Capitalist economies. The USA propping up its lame duck industries is a case in point. The British experience tells us it will end in tears - they are delaying the inevitable.

Has andrewmartin never had a mortgage then?
Gordon Thompson

The problem has been that after the early 1990s recession the big 3 US manufacturers shifted their focus to the higher margin products (SuVs or light trucks as they also like to call them to avoid emisions rules) and almost didn't bother on cars.
Japanese and European manufacturers had since the protectionist measures of the early 1980s recession started building factories in the US well away from traditional car manufacturing areas where they were welcomed for creating job often in areas of high unemployment.
They built cars far better the the big 3 US and had too to avoid the buy American predujuice. Once they had dominated the car market they moved on to the SUV market built them better than the big 3 and were beginning to show signs that they would go on to dominate there too - the best selling SUV in Texas in '07 was a Toyota!
The foreign car manufactures sales are falling at half the rate of the Big 3 and are in a far better place to face the down turn as they started out with a far leaner set up and no legacy costs at several thousand dollars vehicle.
THe US government would have to pump $150bn to make the big 3 US players competitive and they would still have to over come the build quality perception issue...

The unemployment rate rose to 5.8%, up from 5.4%

The number of manufacturing jobs fell to 2.86 million, the lowest figure since records began in 1978.

See we do have jobs that produce things

Whoops, its all imported from china and put together in the UK

Ultimately this will all end up with the US refusing to pay back their Chinese loans. All the other deveolped countries are just following the US lead. What have the Chinese got as collateral against their loans to the US?? Nothing, it is in effect an unsecured loan and it could end up in a punch up if they are not careful.

#18 supercalmdown: Begging compensation for B+B and Northern Rock is a regular feature of your posts. But these companies have failed. In a proper model of capitalism, they should have just disappeared.

Shareholders would have still got zilch, unless there was a net surplus of assets AT THE MARKET PRICE THEN PREVAILING over liabilities. I know of no evidence that this is the case, au contraire for B&B.

The pension funds, at least in principle, know the risks they are taking. Small investors should not touch the stockmarket, except possibly with unit trusts, unless they can afford to lose the lot. I have a diversified portfolio of shares: they are not doing well, but I knew the risks when I bought in and didn't bet my shirt anyway. If the lot goes down the pan I will not be begging for compensation from HMG.

Why should taxpayers be expected to loan these dinosaurs money - when it is apparent they didn't spend the cash they raised in loans from China & elsewhere wisely?
The US model of free enterprise (which we've slavishly followed in the UK) has had it's time.
Natural justice and the cyclical nature of events over history probably says it's time to allow other parts of the world to do some catching up (or overtaking?) and allow the millions who we in the west have exploited for centuries to have a better life.
Tough, but what right to the transient short-term wealth we've enjoyed for the past couple of centuries do we have?

#61:
The collapse in gilt sales in GBP reflects that not all the investment managers are that stupid. They could see rate cuts coming and that this would trash the currency so why invest in GBP fixed incomes if the basic investment loses 10% of it's value in 1 month. Any international investor buying UK bonds earlier this year is sitting on large losses (in their local currencies).
When investments in gilts increases you can take it a sign that the investors think the pound has bottomed out.
The dollar remains a better bet because no matter where you are you always need dollars - every global commodity is traded in USD so there is a ready market. 1$ is always worth 1$ but this year has been worth between 50p and 70p.

#18

The Govt has absolutely no intention of rebalancing the economy. It's effort and our cash is going only into propping up the financial services sector.

Regarding cars I'd like someone to explain why it is that the Norwegians can do this

https://www.think.no

but Scotland despite having had two of the biggest and most profitable banks on the planet couldn't.

65 From this I am taking it you are inferring that he was wrong about Britain being the first.

Actually, according to Marxist ideaology, none of the previous 'revolutions - Russia, China etc etc met the basic required criteria to be succesful so they don't actually count because they shouldn't have been done in the first place.

One of the basic rules is that it must be an industrial economy - which neither China or Rissia were - or it will ultimately fail.

Why blame the cheap money from China? If you learn about economics and finance, you will learn that low interest debt is a blessing. Nope, it is not China's fault that we're in today's crisis. It was what we did with the debts that we're ended in today's situation. When you borrow money not to invest but to consume and wars, bad thing bound to happen sooner or later.

#49 "Are my concerns reasonable?"

Just because you're paranoid, doesn't mean they're not out to get you! ;-)

#61 Good Point.....why is the $$$ doing so well, you could add that the traditional safe haven of Gold is underperforming.

The only thing I have to offer is that there is nothing happening in this crisis that follows the "norm". Perhaps people feel that anything linked to the largest economy has to have the best chance....I don't agree...they started the mess.

As to Capitalism being over, or the worst thing for us all, there is clearly a void which needs to be filled by people who can objectively learn and who are visionary.

I am going to hide in my Bothy up a hill and come down the mountain when it is all over....hopefully what I find will be new.

This finanicial crash and disolving trust in banks has been a collective "9/11" for Wall Street and London and many other power centres worldwide.

The collective mind is in full denial of the consequences of some US$27.4 Trillion dollars taken off equity market values on global stock markets in less than one year, still falling.

Fundamental changes on both wealth and standards of living of Western Economies, particuarly the USA will change to lower levels for possibly a generation. The greed and glutony of the borrow and spend jet set and bling people is well and truly over.

Massive wealth is now seen as not a good thing and bankers are lepars at best. Most of us need ot examine or own morality and values. We need to spend what we earn only and save for our own futures too.

Borrowing now in massive Billions is not the "right thing to do" as Brown keeps harping on about. He had ten good years with lots of stealth taxes and has nothing to show for that except debt and sold off gold reserves. If he is allowed to get away with a Blank cheque now, sterling will crash and we shall have the IMF teams in London before the Spring of 2009.

Reform, wiser spending with less on Public Service quangoes, gold plated pensions and off book projects would be a start. This man Brown will go down in history as the worst Chancellor and the worst Prime Minister in the past 100 years or more.

His character is flawed in that he has no reflective ability or humility to realise, understand then learn from his own mistakes. An arrogant, preening man, who thinks he knows better than anyone in the whole country as to how to live our lives.

#1 No way, Jose !! For the last 20-30 years China has waged a very successful economic war against the "renegade province" (Taiwan) to the extent that currently there is unrest in Taiwan over the number of jobs lost to Fujian province across the straits.

This is a very good application of an ancient Chinese philosophy that - Business *IS* War !! So they applied all the tenets of warfare to business.

Already the current crop of Taiwanese leaders are falling over themselves to be particularly nice to the visiting Chinese big-wigs. Of course, there will always be the the few local jingoists and nationalists who will cause trouble for the bilateral relationship. Neither England, Scotland nor Wales are immune to this problem as witnessed in these blogs these past few days !!

Many now see that Taiwan (or the renegade province, as the Chinese calls it) will be economically forced to reunite with the motherland !! No need for a shooting war !! After all, shooting wars cost money and lives; so why waste money and lives when it can be done economically !!

When the British fought several guerrilla wars in the '50s and '60s, they used a method known as "the wars of hearts and minds". When the Americans got involved in Vietnam, the Brits offered them their expertise in this but the Americans were reported as saying,"Grab them by their crown jewels(note 1), and their hearts and minds will follow" !! We all know what happened there !!

Well, the Chinese took the American saying, gave it a slight twist and applied it successfully. They grabbed them by their wallets and their hearts and minds followed !!

note 1: this is sanitised to avoid moderation by the BBC !!

To the guys at 3 and 48. Well done you! Perhaps you can sell your products/services to each other, while the rest of us revert to our ancestral hunter/gathering.

You can have alternate client meetings with each other, discussing the plight your revenues are facing due to everyone else's recklessness.

Of course if everyone had done it your way, never borrowed a penny, and we all had nice sustainable 'growth', we might never have got out of our forefathers huts in the first place.

I can see while you're frustrated, but most people in this bubble economy were just playing the cards they were dealt as best they could.

#18 & 62 - You guys are surely having a laugh with regard to increasing the pay (or defending the idea of increasing the pay) of public sector workers.

No 62 is correct that it would be immediately noticeable if the ill were left to die in the street. To those of with experience of these matters it is also immediately noticeable if the ill are left to die on trolleys in hospital corridors.

At least there is some form of brutal honesty in just leaving them in the street, as opposed to the perverse dissembling intelligence that is required to achieve the same result but with "improved optics." - A dissembling intelligence that I am expected to pay for!!

How many people does it take to empty a dustbin? - the answer is it takes a lot less if they just empty dustbins and don´t bother with putting cameras inside peoples rubbish bins, or hiring an army of lawyers to see if they can use anti terror legislation to prevent fly tipping.

Far from giving these people a pay rise I´d vote for a special tax on them - let them fund their pensions the same way everyone is required to fund them. If they don´t like it they can go find work somewhere else the same way that everyone else is required to behave.

The UK has many problems and none of them are helped by creating, fostering and developing a special class of public functionary. They long ago ceased to be public servants - what public service is performed by fiddling practically every statistic produced on virtually everything?

Perhaps the reason why the credit crunch has become such a global phenomenon is because we now entering another phase in the history of world order where civilizations have been seen to rise and fall or come and go.

It might just be that what we are now witnessing is the first real evidence of the demise of the western democratically run economies and if China does become the next global superpower then these events will have turned full circle.

If that is the case then for most of the people living in the USA, Europe and UK we might be entering a period akin to the dark ages.

5. "At 09:17am on 12 Nov 2008, joeplumber wrote:

What happens if China asks for the money back?"

What happens if we all laugh and refuse to pay it back? Are the chinese going to send in the bailiffs?

Robert,

I think you're slightly missing the point. GM is a huge pension fund/health care provider which just happens to make cars to support this activity. I think it costs around $1,000 per car produced to support this social welfare. Clearly it is doomed unless these costs are reduced. The unions know this so their next wheeze, having bled the company dry, is to get their newly installed president and congress to get the taxpayers to subsidise them. The taxpayers, many of whom would dream of this level of welfare protection, would be mad to intervene.

What next - the airlines, house builders? Taxpayers should not be bailing out dysfunctional companies. That's the responsibility of the managers, directors, shareholders, unions, employees, banks and debt holders to sort out.

superschnorb #26,
Absolutely spot on!

My feeling is that the real fundamental principle that is driving and will drive this amazing unwinding of the whole system is...

...that we just don't need 60 - 75% of what we buy today!!

So the western economies may have one hell of a long way to fall.

#2 "Pax Americana" is on the same level of oxymoron as "military intelligence" !!

#8 "I find the whole nationalisation thing in the US amusing in a morbid sort of way. The country that has railed against socialism for so long now becoming the world's leading socialist society. And having to borrow the money to achieve this from the world's supposedly biggest communist state simply adds to the delicious irony."

This is what had me chortling for the last 3-4 years now. The fact that Capitalist America is in hock to the tune of US$ 2 trillion to the Communist Chinese is too delicious not to savour !! And this is not counting any personal or corporate debts !!

To "banks/companies that are too big to fail" we must now add "debts that are too big not to repay" !! With their clout, the Chinese can force the US economy into junk status and the US$ into the Zimbabwean league if the Americans try to welsh on their debt !!

Will we soon be seeing the American province of the Peoples' Republic of China ??

#74 RedLenin

65 From this I am taking it you are inferring that he was wrong about Britain being the first.

I was inferring that Britain WILL be the first. I agree that Russia and China don't really count as there was no bourgeoisie in those countries to revolt against in the first place. I think Marx said that a country has to be Capitalist first and then turn Communist. Communism, I think, is to be seen as post-Capitalism.

To add to #65 the IMF has said that Britain will suffer the most of all the developed nations in this recession. If sashaclarkson is correct we should hold on to our hats . . .

#61, number of reasons:

1) The interest rates in the US are not running at -2% in real terms.

2) The US's economy is not **solely** based on a property asset bubble, financial services and oversupply of credit

3) Everyone, apart from apparently reporters, realise that GB is an utter incompetent that is doing his best to put off the day of judgement.

4) Last but not least, the US is a major importer. If the dollar depreciates too much the large exporters such as Japan, the Gulf, China etc will intervene to push it back up. The UK isn't as important.

#63 bankslickerminusther

I agree there was quite a bit of commercial activity by some businesses during WWII, benefitting both sides. You do not really think this was a one off do you?

The Taleban at first were a rabble, disorganised, untrained, ill equipped and no concept of modern war strategy. Now they are at least the equal of the coalition forces.

They are now well trained, well equipped and versed in modern warfare strategy in NW Pakistan by nationals of an oil rich country that is supposedly a coalition ally. Much of their financial support comes from the same source.

And who trained the nationals of this oil rich country? Well, as part of the deal when the UK flogged quite a few dozen jet strike aircraft, worth several billions, former SAS, Paras and Royal marines were sent to the Gulf to train their Armed forces personnel in advanced warfare techniques.

I have also wondered what exactly this oil rich country intends to use this potent air force for? I mean, if you add the projected new order for the new Eurofighters (about 50 I believe) this Air Force will only rank behind US, Russia and China. is it too much to assume that the UK government knows what it is doing?

Or am being too cynical?

#81

re public sector pay

You seem to be mixing up management and those who actually do the work, sure, make management fund their own pensions but you can't expect those who are are earing such a low wage that many are eligible for benefit claims to do so.

BTW, I've seen the waste that occurs in hospitals/ NHS trusts, very little of that waste is found in the front line services but within the back offices and trusts.

A slightly different take: Service industries and social welfare are only possible because people in producive industry make a surplus over their own needs. In the past, this could broadly happen in one country. Now it has gone global. The West is in effect existing partly on social welfare financed by China.

We had better be nice to them!

How do we really know that China has the funds to buy anybody out? A while ago Russia was cash rich, today it is very different.

When times are tough the sorts of things and quality that China exports are the very things we can do without.

Maybe we are in for another round of "Buy Bristish"....are we making anything anymore?

#16 "But how the transition is managed will decide if our children remember it as just an economic upheaval or something worse."

They will also remember how their parents put them there in the first place, having sold their children's birthright for their own frivolous living !!

#87 Marxist predictions were confounded by Keynesian fiscal policy and the welfare state. The future is uncharted territory - perhaps we are headed for a global welfare state of sorts - with the productive economies calling the shots.

I don't see communism as an answer, but perhaps a new form of free market post-capitalism based on the Social Credit philosophy of Clifford Hugh Douglas (minus alleged antisemitism).

#1 in jest was partly correct.

The Chinese should insist on Taiwan as security on loans to the US intended to rescue of its economy. That matches the scale of the problem.

Interesting to see the future world number one socialist state (USA) going cap in hand to the future number one capitalist state (China). We should see more of these sort of reversals as the massive de-leveraging continues.

#88
"4) Last but not least, the US is a major importer. "

Up until now. It is surely going to run out of credit (borrowing ability) very soon.

On the subject of GMAC, hasn't GM sold it?


I see the EU are going to clamp down on the Credit Rating Agencies. In my view they have a huge responsibility for rating a lot of the Toxic Debt as AAA. There should be ercords of this. Perhaps some of them would like to show how they arrived at these ratings.

#92

"Maybe we are in for another round of "Buy Bristish"....are we making anything anymore?"

I think that would have to be a "Buy European" these days, for the very reason you suggest, at least some of the more enlightened EU countries decided that keeping a manufacturing base (and mixed economy) was a safer bat than just becoming a large warehouse for far eastern production...

# 60. John_from_Hendon wrote:

"I recall conversations with a now major company several years ago that went like this. Can I buy some of your shares? Answer: No not unless you have permission of the Red Army."

The Red Army only exists in Russian or in China in the 1920's 1930's. I guess you're talking about the People's Liberation Army in China which has many commercial companies in which case you naturally would need permission from the PLA to become a shareholder just as you would need a UK local authority's permission to hold shares in their companies. As it happens I'm currently helping one local authority to set up a local housing company and it clearly states in the articles of the company all shareholders needs permission from the local authority before selling shares to outsiders.

"The whole world protects to a certain extent."

I agree with your statement but China is not trying to woo western investment to bail them out of a crisis at the moment so I find your comment off-topic.

#25 Those who do not learn from the lessons of history are doomed to repeat the same mistakes.

The Brits have their taste of that by trying to prop up British Leyland and where is that now ??

The Americans will soon find out the cost of doing so !!

#28 "Of course had the shareholders given more thought as to how the company(s) was being managed rather than just gloating on how large the divs were..."

I totally agree with you.

They do say that the road to Hell is paved with good intentions. In this case, I think it was paved with good dividends.