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Money.cnn — General Motors Corp. plans to increase its stake in its thriving joint venture with Chinese automakers SAIC and Wuling Automobile, media reports said Wednesday, citing a senior SAIC executive. Spokesmen for GM and partners SAIC and Wuling refused comment on the reports in China Business News and other state-run newspapers citing SAIC Motor Corp.’s chairman Hu Maoyan as saying that GM was seeking to raise its 34% stake in the joint venture. Hu, who was speaking at an industry forum in the northern city of Tianjin, did not give any details. It was unclear how GM, which says it needs U.S. government help to weather current hard times, would finance such a move, or even if it would be able to convince either of its partners to sell. More

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Andrew Jeffery
A Second Stimulus Package?
California Democrat and Speaker of the House Nancy Pelosi is urging lawmakers to push through a second stimulus package in short order. Arguing economic conditions have deteriorated such that waiting until President-Elect Obama takes office in January would be unwise, Pelosi floated a $60 to $100 billion relief package to be passed by the end of the month. According to the Wall Street Journal, the Speaker believes tax cuts implemented by adjusting tax-withholding tables, rather than more rebates or reductions in capital-gains taxes, would immediately inject cash into the economy.

The proposal comes in conjunction with the convening of Obama’s 17-member economic advisory board, which includes such notables as Berkshire Hathaway CEO Warren Buffett, Google CEO Eric Schmidt, former Treasury Secretary Robert Rubin, former Federal Reserve Chairman Paul Volker and others. Pelosi is also busying herself with the troubled automakers, meeting with representatives from Ford, General Motors and Chrysler, over their request for federal money to stay afloat. More

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Let’s see if Wall Street Rallies on this:

…”two thirds of the largest listed corporations globally now have negative net cash positions…”

Newsweek
…Fueled by reckless credit expansion since 2000, the U.S.-centered financial crisis is shifting from crippled banks, brokerages and hedge funds into the real economy, with corporate troubles mounting. Businesses that cranked up leverage during the years of ultracheap credit are confronting repayment woes—sometimes exacerbated by poor risk management—that could well spell their demise. The list includes titans like Ford and General Motors in America, Deutsche Post and telecom Italia in Europe and Hong Kong-listed Citic Pacific Ltd., which recently declared a $2 billion loss from a dubious currency hedge. The common denominator is debt, which a recent report by Westhall Capital in London calls “the new weapon of mass destruction.” It warns: “As the credit crisis spills over into the real economy, a wave of corporate bankruptcies looks increasingly likely.”

The pain is spread across every geography and sector. Compiling data from Bloomberg, Westhall calculates that two thirds of the largest listed corporations globally now have negative net cash positions, meaning that their operations currently generate less working capital than is required to run them. When loans were cheap and expansion was priority one, this wasn’t foreseen as a problem. Today it represents an existential issue, particularly for companies that must soon refinance a significant portion of their debt. The report, entitled “The Good, the Bad and the Dead?” identifies a list of household names (including automakers GM, Ford, Peugeot, Renault, BMW and Hyundai) facing significant debt-rollover challenges. Just as with banks, doubts about the actual net worth of at-risk companies have intensified to become “primarily a problem of solvency,” says Westhall’s Keith Woolock. “We worry that this could spread.”

One category of concern: companies dependent on discretionary spending. That’s because retail, tourism and entertainment receipts are down sharply in the industrial economies, and slowing even in emerging markets. Whether its $4 cappuccinos, the new cell phone or the latest handbag, consumers aren’t shelling out for it like they did even a few months ago. American doughnut chain Krispy Kreme, for example, abruptly closed most of its outlets in Hong Kong last week due to weak demand for its treats. Elsewhere in Asia, the giant electronics rivals Samsung and Sony both recently announced sharply lower earnings and reduced their growth forecasts for 2009 on slumping demand for their semi-conductors, MP3 players and flat-panel televisions. Richard Reid, a Citibank equities analyst, thinks this blow is landing hardest on high-end brands and retailers, as Wal-Mart and its ilk benefit from a shift toward bargain hunting. “Households seem to be very quick now to trade down to heavy discounters, move away from eating out, and of course use the Internet to compare prices,” he says.

There’s also disconcerting evidence that suggests a similar consumption slowdown in emerging markets. Recently havens of hypergrowth, the BRICs (Brazil, Russia, India, and China) have suffered stock-market crashes far deeper than Wall Street’s this year, which portend trouble for key global industries. Consider the twin pillars of modernity: automakers and airlines. Both suffer extreme overcapacity and flagging demand globally, which has been exacerbated of late by unexpected sluggishness in Asia. Auto sales in China, now the world’s second-largest automobile market behind the U.S., have fallen for two months running and by one credible estimation the industry’s combined output is now at a dismal 65 percent of capacity. Things are no better on the tarmac. Last week, Air China and China Eastern (the largest and third-largest state carriers respectively) posted a combined third quarter loss of $605 million due to sagging passenger demand and higher fuel costs. More

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Jim Willie
Golden Jackass.com
Listen to Jim Willie speak his mind on the death throes of the U.S. Dollar with the economy on life-support. Click

What is pushing the USDollar up cannot be construed as anything remotely resembling healthy factors. In no way whatsoever does it resemble investment. It is more like paid off death contracts, paid off death investments, paid off transfers from toxic US bonds into what are falsely regarded as safer US bonds with a guarantee from a crippled USGovt. Foreign financial entities are liquidating on massive scale. They need a tremendous amount of USDollars in order to complete transactions. Also, a tremendous amount of USDollars are needed for CDSwap payouts as defaulted bonds are resolved. Almost all CDSwap and other credit derivatives are paid out in USDollars. The Lehman Brothers payout was full of lies, again. The Lehman Brothers total volume of corporate bonds was $160 billion, but $400 billion existed in total CDS volume tied to them! It is no surprise that the Dow and S&P500 stock indexes fell hard (by almost 400 points on Dow) and on the Lehman resolution day. And market mavens boasted of no impact on the Lehman funeral date!

The DTCC (Depository Trust & Clearing Corp) reported only a net $5.2 billion payout on the Lehman Brothers failure CDSwap resolution. The ‘Dis-Trust Clearing Corp’ might want to check credit derivative experts who claim between $220 billion and $270 billion in that total after netting. By the way, the DTCC is the official banking entity that oversees all stock clearing overnight, including all the naked shorting. The de-leveraging process has left the central bankers empty handed, exposed as having empty financial cupboards. Thus the need for massive central bank swaps from the USFed, which has perversely farmed out its function to foreigners. In fact, the foreign central banks might be in possession of more US$ inventory items than the USFed. So the US central bank has asked foreign central banks to do its job, and to manage the world reserve currency? This amidst a US$ rally!?!

The Credit Default Swaps are capable of burning Hiroshima holes all over the US financial system, resulting in USEconomic implosion from eliminated bank and financial system structures almost entirely. The process has only begun, but in darkness. The other purpose for big bailouts was to prevent CDSwap explosions, risking a string of bombs to go off. The key aspect of CDSwap contracts is their hidden nature, with fuses intersecting in the dark.

When the market mavens talk about the de-leverage process, they refer to speculative investments being liquidated. Oftentimes, they do not include in the story how Wall Street firms, desperate to stave off bankruptcy, are targeting viciously their own clients. The big accounts lie in hedge funds, where the private wealthy are being decimated. Credit is being pulled. Margin calls are being delivered. Margin ratios are being raised. Those funds whose positions are aligned with the predators on Wall Street continue in their investment portfolios. Those funds in opposition are attacked with artillery, carpet bombs, and early morning raids. The USDollar is rallying amidst this type of sinister liquidation. The result has been numerous spread trades anchored by the USTreasury Bond are forced into sale. That means a USTBond buyback occurs from the short cover on the trade. Whether a spread on mortgage bonds, corporate bonds, emerging market bonds, or crude oil, or gold, the trade is liquidated, and a USTBond is bought back. NO TANGIBLE END DEMAND, ONLY USTREASRY BOND SHORT COVERS. This is the basis for a US$ rally?

WORSENING US$ FUNDAMENTALS

How many times have we seen the US stock market go down, non-government bond yields rise, the USDollar rise, and the USTBond yields fall? That has been the norm in the last few weeks. These are death signals, not investment signals. The USEconomy cannot afford liquidation and constricted credit, a well-known fact, seemingly forgotten today. These signals come amidst falling confidence, more bank distress measures, more job loss, more home foreclosures, and lately, trouble with letters of credit at port facilities.

Financial markets, including the USDollar, have yet to factor in the deep USEconomic recession. The USDollar rally flies in the face of deteriorating fundamentals. See job cut announcements at Caterpillar, Merrill Lynch, General Motors, Chrysler, several Wall Street firms including Goldman Sachs today. Weekly jobless claims at close to half a million per week, equal to peak during the unrecognized 2001 recession. See the UMichigan consumer sentiment, Philly Fed index, Empire Fed index, leading economic indicators, durable goods orders, on and on. Retail sales, the backbone of the backwards USEconomy, are plummeting. That is, the plummet is before inflation price adjustments. Car sales are plummeting also.

Exports are to be worse from the higher US$ exchange rate on the table, combined with slower foreign economies. The improved export trade has been a big boast from the lunatics running the asylum. The USEconomy is accelerating in its decline, certain to produce a recession and huge USGovt deficits. That deficit is likely to at least double and possible quadruple next year. USTreasury Bond issuance cannot conceivably finance all, or at least half, of the commitments. The printing press will do the rest, which will cut down the US$ valuation. The USDollar decline lies ahead, when the distortions slow or come to an end. Gold will soar on the other side of this liquidation.

An extreme backlash attack is coming against the USDollar. Rising import prices in foreign economies have already caused alarm. Foreigners will soon attack the US$ in a matter of time, using heavy US$-based reserves. Their banking sectors are in disarray, primarily because they are intimately tied to the US$ and USTBonds. The process has begun with Brazil and Mexico in Latin America, to use their strong reserves and sell into this queer US$ strength. That is what reserves are for. The process will spread to other nations.

GOLD MARKET CLOSE TO BREAKING

The gap between the physical gold market and paper gold market is widening. An example bears this out. In Toronto this week, a major off-market gold transaction took place. The price paid was $1075 per ounce on the physical transaction. Its volume was in the multi-million$. There was no US involvement in the transaction, and the settlement was in euros. Enormous repositioning is ongoing by the groups that will participate in the new, partially gold-backed currency. My take is this movement is from a large financial entity with global activity, and ties to central banks. It might be tied to the upcoming split in the euro, into a Nordic Euro and trashed Latin Euro. The Nordic version might contain a gold component. This and other transactions are taking place with European settlement. They are being satisfied in the alternative market, far from the distortions of COMEX. This was a physical transaction with the real metal being moved. Big shifts occur behind the scenes. A couple of months ago, 400 metric tonnes were moved into storage with the Royal Canadian Mint by a sovereign entity.

The more massive the paper manipulation, the more violent the coming correction. The asylum managers are losing control of their paper-physical arbitrage. Watch the gold lease rates, and silver lease rates, which have each more than tripled in the last two months. Lease rates precede price movement. Bullion bankers, including central banks, are reluctant to lease their physical supply. This time is no different, an event to come after the COMEX criminality is swept aside, or simply overwhelmed in return. One well-informed source, with over two decades of gold market experience, actually expects arrests to take place among COMEX officials before long.

John Embry of Sprott Asset Mgmt has raised the possibility of a December gold futures contract default. He is not predicting it, or claiming it as certain, but rather mentions how talk centers on the December gold contract as having extreme stress for actual delivery. Pressure is building. The December contract not only is end of quarter, but end of year. He suggests a possible default. He said, “there is probably going to be such an event to change perceptions.” He cited a possible force majeure that could act as a “seminal event that defines the whole situation.” He explained that the physical gold price would then dictate the paper gold price, a return to normalcy, and with a gigantic move up in the gold price. Right now the paper gold market is overwhelming the physical side, but the physical side is constricted on supply. He explained that hedge funds are being unwound on a massive scale, slaughtered by margin calls. The long side must call for delivery on many contracts. He also expects there will be many questions on the Exchange Traded Funds soon as well, although those are surely not as important as the COMEX contract defaults. Watch and listen to his interview on the Canadian Business News Network (CLICK HERE), and be sure to move to the 10 to 11 minute mark.

NEW BRETTON WOODS II FARCE

Last weekend in Brussels, G8 Finance Ministers met. Among other things, they discussed a reform to the global banking structures. For the many challenged on geography, that city is in Belgium, headquarters for many European Union functions, in Western Europe. Creditors were not present, which means the finance ministers were talking to themselves. Credit masters were not invited. The nations whose banking systems are in the process of implosion are essentially attempting to revise the global currency system. Those in attendance constitute the losers! However, the Arabs and Chinese were not present. This seems entirely backwards. The bankrupt nations do not dictate to the creditors terms of a revised agreement.

Imagine a large business saying the following. “We are bankrupt. We want a meeting. We are going to dictate to you bankers anyway. We are broke. Our economies are shattered. Our banking systems are in ruins. But we going to tell you how we are to restructure our debt and rework a new system. We realize our debts to you are bigger than we can ever repay. We realize we cannot continue in commerce without your continued extended credit. But we will force upon you a new system. It does not matter what your opinion is. You do not have a seat on this elite committee, sorry!” THIS FLOW IS NOT FROM THE WORLD OF REALITY!

No! Bankruptcy receivership is next, where creditors will be left with few options. They will be compelled to run management committees, and dissolve many functions of government. Creditors will probably await the G8 initiative, then summarily reject it. They will next propose their own new global financial structure. The teenager’s credit card is about to be taken away, when the irresponsible kid proposes a new repayment system, new promises, new chores done even. The kid has burned down half the neighborhood, yet thinks he can call the shots! Sadly, the parents will probably ground him and force a tutor to direct his studies, and force a strict drill sergeant to direct his work activities. His friends will not be permitted to form new teams that include him. A ‘Post-US World’ is being planned, and Americans are the last to know. Entire new barter systems between a key pair of nations is about to be launched. Regional bond and commodity organizations are being formed, with exclusion of the US. The US press reports nothing on these important developments.

Foreign creditors will form new committees, which will be recognized in time as the Receivership Committee. Foreigners are watching in horror. Decisions have already been made, with Americans the last to know. In order to arrest the cancer they so clearly see, they are ready to force a complete upheaval. The USDollar will lose its global currency status, a thoroughly abused privilege. The above lack of disclosure only reinforces their motive to take action. They will move when they must, upon a system failure, or when they are challenged, or when flimsy attempts by debtors are made to dictate reform.

Without any changes forthcoming soon, the foreign banking systems and economies face huge threats to failure. To friends, family, and contacts, my approach has been to attempt to explain the underlying forces behind revolutionary financial change. Foreigners must cut off a cancerous body part, the one attached to the United States. Foreigners must cut off flow from a toxic systemic organ, the one attached to the United States. CUT IT OFF OR RISK DEATH. They must disconnect of USDollar from the global currency system attached intimately to their own financial and economic systems. They must to survive.

ARAB GOALS & MOTIVES

Arabs clearly lust to control and manage a global gold trading center. It will be in Dubai in the United Arab Emirates. The new Gulf dinar currency will pave the road to that center. The Gulf Coop Council is biding time, cutting time delay deals, warding off pressure by the USGovt, appeasing with weapons contracts from the USMilitary, and is working behind the scenes to create a new dinar currency. The new Gulf dinar is likely to be primarily gold in its backing. So, foreign nations will soon be forced to purchase the dinar for all or most of crude oil payments. This forces the purchase of gold in order to purchase crude oil. The demand for gold will thus fortify the global banking system, by means of commodity settlements. Many details are unknown, but the basic structure has been slowly come to light. A new motive flashes red in front of Arabs to institute some changes FAST. The crude oil price is down, cut in half from July. Their revenues are sharply reduced. Russia figures into the complex deal to launch the dinar. The Saudis and small sheikdoms need security protection. The next chapter will involve protection amidst a gold-backed currency, not a military-backed currency, in Saudi eyes.

ISOLATED USTREASURYS

The other side to the Arab dilemma is that the USTreasury Bond demand is quickly eroding from Petro-dollar recycle on trade surplus. The USGovt finds itself as relying far too much on foreign central banks for demand of USTBonds, relying far too much soon on the printing press. The USTBond demand is missing the oil surplus in recycle. Their reduced and unstable oil revenue motivates the Arabs to install a new payment system, based upon an end to the ugly defacto Petro-dollar standard. It shamefully is the basis of what my analysis has called a Protection Racket.

The incredible fact evident in the data is that until mid-September, the US Federal Reserve has drained liquidity from the US private banking system in order to offset its colossal bond swap bailouts for major Wall Street and New York money center banks. Their objective was to avoid undue US$ money supply growth. THEY WERE TARGETING GOLD. They essentially drained the lifeblood from the USEconomy on Main Street in order to subsidize fraud sanctioned and approved on Wall Street. Only since mid-September has the USFed been monetizing USTBond debt issuance. They are running scared, printing with abandon. The gold price is falling as the USDollar printing press is rapidly heating up, no longer offset by bank system drains. Details are in the Hat Trick Letter report.

DESERVED DISRESPECT TO GREENSPAN

Can you believe what is happening before a Congressional banking committee? Greenspan is being grilled, as his past errors are vividly pointed out. His past memos are being read back to him. His wrong premises are being questioned as having being totally discredited. His opposition to credit derivative disclosure is being challenged. His opposition to Fannie Mae reform is being challenged. He has been brought to task for his steadfast opposition for reform in the past during his tenure as USFed Chairman. He is being interrupted by lowly Congressional reps. His time to speak is being cut, in defense of others to be grilled. HE IS BEING SHOWN THE DISRESPECT DESERVED OF ANY FAILED PUBLIC OFFICIAL. Maybe they will demand to know who paid his second paycheck from Switzerland, and what his agenda was! Not likely! My view is that Greenspan was a primary key person used to take down the US banking system, to pave the way for a bigger agenda. These are intelligent people who knew what they were doing, who were the cheerleaders, even the Mythology High Priest.

Greenspan admitted a grand flaw in his free market ideology. He admitted being shocked that financial markets did not self-regulate. Hey Alan! They never self-regulate amidst a Fascist Business Model, since regulators and law enforcement is compromised as much as humanly or institutionally possible! He admitted a failure in the global financial market structure as he perceived it, a stunning admission. He acknowledged the USEconomy is faltering badly. He sees the rise in job layoffs and unemployment. He sees the retrenchment in consumer spending. He sees the price declines in housing without abatement. He forecasted a worsening recession.

His biggest admission is this. He admits to a flaw in the structural model perceived in the critically function for global banking. Wow! THAT IS A BIG ADMISSION, NOT PROPERLY PERCEIVING THE GLOBAL BANK STRUCTURE. He admits to how his risk pricing model did not take into account periods of financial stress. Hey Alan! Is that not what they are designed for? He used to boast for a full decade how offloaded risk via credit derivatives was a sign of sophistication, which enabled economic expansion. Instead, my view is that risk offload devices contributed toward an expansion atop a bubble, which when burst, killed the entire US banking system and then the USEconomy. He used to boast that credit derivatives shared the risk, but in fact it resulted in destruction on a widespread systemic basis. Recall the many claims made by Bernanke, that the subprime mortgage bond bust would be contained. The former Princeton Professor is not a good student of banking and economics! Unlike me, he is greatly encumbered by the limitations of economics credentials! Mathematics and statistics are pure science and its application as artistry.

NO SOLUTIONS FOR ECONOMY FROM BAILOUTS

Almost all US-based bailouts to date are to pay for dead financial firms. Their shareholders and bond holders and asset base have been repaired but not restored. To think this benefits the loan process is folly. It facilitates retirement to the Caribbean for corrupt bank executives. The flow of federal funds will not find its way to the people, or at least only pennies per dollar will. The ‘Top-down Approach’ is destined to fail because the corruption, bond fraud, accounting fraud, financial instrument shell game, and other assorted illicit procedures are the cause of the problem, and all lie at the top of the structure intended to trickle down! To expect benefits downstream is lunacy. In fact, the devices to assist and subsidize the criminal behavior at the top are vastly expanding with multiple branches. No less than five special purpose vehicles created by JPMorgan Chase were announced on Wednesday. The number of USFed lending facilities, all to big banks, none to people on Main Street, has exploded to such an extent that one needs a sportsbook guide to comprehend all the acronyms. David Rosenberg of Merrill Lynch even coined the YAP, yet another program. Proliferation might be what the architects of the Financial Coup d’Etat intended. Confusion is the best friend of coup architects, just like truth is the first victim of war.

The people receive $1 for every $500 given to Wall Street elite in fraud redemption. The rank & file population entered a ‘Revolving Door’ of loan repayments that often do not reduce the loan balance, assured to end in foreclosure within a year or so. The same nonsense of ‘Trickle Down’ was prevailed when it has no past precedent of succeeding.

The lack of disclosure is a tragedy. Congress demands no better disclosure, and receives none. The Lehman Brothers resolution has been conducted in total darkness. Evidence coming my way indicates that JPMorgan is using the dead Lehman carcass as a vast private arsenal to attack hedge funds. Some such funds have most of their assets frozen, while their positions are attacked. What is happening is criminal, a climax of this administration, which has been taken over by Wall Street. A complaint has been made that Treasury Dept documents look like redacted CIA documents, hardly what is needed to instill confidence. One official decree after another undermines investor confidence, the last being short rule restrictions on financial stocks, with an exemption given to Goldman Sachs. This is a selective bailout of Wall Street, a process run by Wall Street, permitting financial crimes worthy of 1000-page indictments.

DISTRIBUTION CHANNELS INTERUPTED

Big disruptive events are occurring in the distribution system. Letters of credit are routinely being refused by export nations who distrust US sources. A fall of 10% to 20% in shipping traffic to western US ports has been reported. Ships are empty at Asian ports, some even loaded but interrupted on their voyage to US ports and European ports. Many details are given in the October Hat Trick Letter reports. Even manufacturers of shipping vessels are being severely affected, as credit has interrupted construction projects. Indian suppliers are often demanding 100% upfront on costs to east coast retailers, again showing the distrust. Almost total attention has been given to banks and credit markets and stock markets. The USEconomy is moving from recession toward something different from depression. The current interruption could actually be more like disintegration. Short-term credit is soon to interfere greatly with truckers and railways in distribution channels on the domestic side, much like letters of credit are wrecking havoc on the overseas shipper side.

The next big shoe to drop is credit cards. Bank of America has announced plans, not yet fully implemented, to cut back on credit cards to lower FICO scorers. The lower 60%-ile of credit score recipients will find themselves without credit cards at all. One friend told me that he used to own 10 credit cards. Recently, all but four were simply discontinued, but a few were not used. Other friends said most of their credit limits were slashed. Changes are coming. Then the next big shoe to drop will be commercial mortgage default. No reprieve, rest, or respite for US bankers. Changes are coming. It will force defaults in most every conceivable financial corner.

DISHONOR AMONG BANKERS

The system is breaking down. Just when the heart attack signals are actually improving, although only slightly, the USEconomy is falling off a cliff, as unprecedented decay is occurring. Some improvement has been seen with the short-term LIBOR rate, the money market funding, TED spreads, and mortgage bond spreads. But bankers and financial subsidiaries are in focus for dishonor.

The following message came yesterday to my desk. It pertains to General Electric. It involved dishonored Letters of Credit (L/C). The US banks not only distrust each other, they are engaging in criminal activity, like contract fraud. If big enough, or connected well enough to the power center, it is permitted. Again, no solutions, only proliferation of chaos. More

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Keith Naughton
NewsWeek
You’ve got to be kidding me. General Motors and Chrysler merge? If ever there was an example of the old saw “two wrongs don’t make a right,” this, surely, is it. And yet the news out of Detroit this weekend is that GM and Chrysler have been in talks for a month and there’s a 50-50 chance these two ailing automakers will combine their fading forces. This is the worst idea out of Detroit since the Edsel.

What’s wrong with a GM-Chrysler motor marriage? Let me count the ways. For starters, there is no white knight here riding to the rescue. Both carmakers are bloodied and battered. GM has lost more than $18 billion so far this year and is hemorrhaging more than $1 billion in cash a month. Chrysler is in even worse shape, with sales down 25 percent this year - twice as bad as the overall anemic American car market. And what little strength these two toppling titans have left is not complementary, it’s conflicting. For example, each makes good pickup trucks - the Dodge Ram in Chrysler’s case and the Chevy Silverado and GMC Sierra in GM’s case. But the bottom has dropped out of the pickup truck business, so what company needs that many different models serving a declining market? What’s worse, both companies are loaded down with SUVs, which have become rolling pariahs since gas prices spiked and America started going green. That’s why GM is dumping dying SUV models like the Chevy TrailBlazer and has put its Hummer franchise up for sale. Why would GM suddenly want to take on Jeep and big, fat SUVs like the Dodge Durango?

Perhaps what’s really going on here is an attempt by some Motown rumormongers to distract from the very real financial crisis confronting Detroit. The credit crunch has driven Detroit to the brink of bankruptcy, with some on Wall Street now predicting America’s automakers might not have enough cash to make it through to 2010, when new fuel-efficient models arrive to supposedly save the day. GM, the thinking goes, is in the most peril because its cash stash is shrinking fastest. Bond analyst Shelly Lombard, of Gimme Credit Research, figures that GM has just 9 to 12 months before the money runs out - that’s far short of its late 2010 introduction of the Chevy Volt plug-in electric car. “Three months ago, it looked like GM had a good chance of making it through,” says Lombard. “Now they don’t have the luxury of time any more.”

But suddenly those dire warnings have been swept off the front page and replaced by the blockbuster news of a possible Motown mega-merger. Forgive me if I’m skeptical. But even the purported advantages of this hook-up don’t add up to me.

Sure, GM would vault ahead of archrival Toyota by acquiring Chrysler’s 11 percent share of the U.S. car market, giving GM one-third of American auto sales for the first time since the SUV was king of the road. But that’s a rapidly diminishing asset. At this time in 1999, Chrysler had nearly 16 percent of the American auto market.

And then there are Chrysler’s minivans. It’s true, Chrysler makes a fine minivan, something GM could never manage so it finally gave up and pulled out of the mom-mobile business last year. But for good reason. The minivan market has declined 19 percent this year, continuing a long slide south. What’s more, Toyota and Honda have been making inroads with their splendid minivans for years, causing Chrysler to cede its once-near monopoly on those kid haulers. More

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…auto sales posted their biggest drop in more than two years…General Motors Corp said it would cut labor costs, sell assets and borrow at least $2 billion to bolster finances in the face of plummeting sales. The U.S. Labor Department said producer prices over the last 12 months jumped 9.2 percent, the biggest increase since a 10.4 percent gain in June 1981 when the United States was last mired in a stagflationary period of low growth and high inflation. A regional manufacturing survey showed factory activity in New York contracted for the fifth time in six months and data in the report suggested producers were passing on higher prices to consumers, which could add further fuel to inflation. More

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A run on a California bank … while the nation’s two federally chartered mortgage giants turned up in need of a government rescue plan, a plan Treasury Secretary Henry Paulson described as being aimed at “supporting the stability of financial markets.” Stocks rallied, but only after weeks of losses. There was a new round of layoffs by General Motors. And even though oil prices fell a little, there was confirmation that inflation is on the rise. Consumer prices were up 1.1 % in June, while wages fell 2.4 percent over the past year. Art Cashin, director of floor operations for UBS Financial Services, says it’s been one of the most unstable periods he has seen in 45 years on the New York Stock Exchange.

A new CBS News/New York Times poll finds that 80% of Americans believe the condition of the economy is bad. The fallout continues. That once-booming housing market that we’ve all seen go bust … Says Mark Weisbrot, co-director of the non-partisan Center for Economic and Policy Research, “That’s the overwhelming cause of this recession. And that’s because we built up an enormous bubble in home prices from 1996 to 2006. It was over eight trillion dollars of bubble wealth.” Weisbrot says that only about 40% of that bubble has deflated so far. “So you’re going to have a lot more foreclosures, a lot more writedowns in banks, possible bankruptcies.” By some estimates, banks may need to write off up to one trillion dollars in bad loans. More

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Richard C. Cook
With the economic news of the week of July 14—the continuing crisis among mortgage lenders, the onset of bank failures, the announced downsizing of General Motors, the slide of the Dow-Jones below 11,000—we are seeing the ongoing collapse of the U.S. economy. Even the super-rich are becoming nervous as cries for an emergency suspension of short selling ring out. What is really taking place, however, is that the producing economy of working men and women is being crushed by the overall debt burden on households, businesses, and governments that could reach $70 trillion by 2010. The financial system, including mortgage giants Fannie Mae and Freddie Mac, is bankrupt, as the debts it is based on cannot be repaid.

This is because the producing economy of people who work for a living simply can no longer generate enough purchasing power for people either to pay their debts or allow them to purchase what is being sold in the marketplace. In turn it is the debt burden and the loss of societal purchasing power that are crashing the stock market. Thus the collapse of the financial economy has started to destroy the producing economy as well. It’s a “perfect storm,” the result of a 200-year-old financial system where money is largely created by bank lending and where since 1980 our industry and jobs have been increasingly outsourced abroad to cheap labor markets. Thus domestic incomes have stagnated while the nation’s GDP has not been able to keep up with the exponential growth of debt. More

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Market Oracle
Many investors don’t look at the long term picture of what is happening. I am talking about looking at 10 to 20 year periods of time. If you looked that far out on a number of key stocks and indexes, you would understand the gravity of the current condition we are in. Freddie and Fannie have been the under pinning structure of our mortgage industry. Both of these stocks and institutions have crashed to levels not seen in 18 years. The gravity of the situation is very serious and a challenge that Bernanke and Paulson either don’t understand, or don’t know how to solve. It used to be said that, “As the automotive industry goes, so goes the country”. That was said in the days when we were still a manufacturing country. Then in recent years, Greenspan consistently stated that we were shifting from a manufacturing economy to a service economy. In other words, we were shifting all our manufacturing jobs overseas. General Motors is still an important facet of our economy, only their stock has crashed as well, and GM is now in some very serious trouble. As of yesterday, its stock was lowest value it has seen in decades. More

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