Free Markets, Free People

auto industry

Wow – if this is "recovery", I’d hate to see "recession"

Tim "Turbo Tax" Geithner has an op-ed in the New York Times entitled, "Welcome to recovery".

No, really.

Or perhaps I should say that it is a litany of liberal talking points and just plain old fantasy. He has a list of indicators which he’d like you to believe prove we’re just around the corner from full recovery.

I don’t have the time to go through all of them, as much as I’d like too, but a couple caught my eye. For instance, jobs:

Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.

That’s just nonsense on a stick. If your best example is a major economic sector which may be adding 23,000 jobs a month, you haven’t much to crow about. Not when you look at the jobs that are going away each month. The reports are not good and pretending they are doesn’t impress anyone and makes what little credibility you might still retain suspect.

And this:

The auto industry is coming back, and the Big Three — Chrysler, Ford and General Motors — are now leaner, generating profits despite lower annual sales.

That’s either a flat out lie or it’s from a second set of books.

e21 points out that if you analyze the auto industry, the news is not good:

The auto companies are certainly not out of the woods yet.  There has been a massive rebuild of negative working capital balances at GM (and Ford).  What does that mean?  Well, working capital is current assets minus liabilities – and it’s a good way to measure whether a company has the liquid assets to grow or build the business (and add shareholder value).  Positive working capital is also a useful measure for gauging a company’s financial resilience.  Negative working capital, on the other hand, means that current liabilities exceed assets – and a firm in this situation can’t spend as aggressively.

How massive is the “rebuild of negative working capital?”  Massive:

07292010_detroit

Those are monthly figures (GM’s only from Jul 09 when it emerged from bankruptcy).  There’s nothing in those figures that makes any sort of case that the companies are turning a profit.  In fact, if you look at what e21 says, it is clear that they’re still doing what got them into the shape they were in previous to the financial downturn.

Certainly their position hasn’t been helped by slow auto sales (even during the “recovery”), but what all of them could use is some investment help.  Ford could possibly get it but it is also possible investors are not likely to risk their capital on an industry that has a government presence.  Again e21 explains:

The roughshod methods that were used against bondholders in the bailout, the questionable methods used to pick winners and losers in the rush to close thousands of auto dealerships and the favorable treatment given to the unions (followed by the codification of this policy in the Orderly Liquidation Authority in the Dodd-Frank financial regulation bill) serve as the case study for why investors and lenders will be skittish about lending or investing in U.S. companies that have a big union presence and/or would be deemed Too Big To Fail by the government.

And then there’s all the money they owe under TARP.

Like I said, just two of the many examples which are pure fiction.

The rest of his article is an attempt to write a favorable history of the government’s effort – but those who watched it and assessed its results aren’t particularly impressed.  Geithner ends his ramble with this:

And as the president said last week, no one should bet against the American worker, American business and American ingenuity.

No one should be at war against any of those either, yet this administration has been at war with the financial industry, the energy industry and business in general from it’s first day in office.   Perhaps it is time for a little internal administration introspection – honest introspection – with the aim of determining whether they’re part of the problem of part of the solution.  If they actually did that, they’d have to honestly assess themselves as part of the problem.  Geithner’s fantasy piece is all the proof you’ll ever need to know that will never happen.

~McQ

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The Coming Tax On Everything

Over the past few days, I’ve been highlighting the fact that the promise of tax cuts for 95% of Americans is illusory at best. If your bottom line is net spendable income, then despite the Obama promise, you’re going to have less of it when all his plans for your income are passed into law. Or, as I’ve been pointing out, while he’ll make a big deal of the tax cut for the 95% on the one hand, he’ll be taking what he’s cut back and more with the other.

The Detroit News editorial board seems to have figured that out:

President Barack Obama’s proposed cap-and-trade system on greenhouse gas emissions is a giant economic dagger aimed at the nation’s heartland — particularly Michigan. It is a multibillion-dollar tax hike on everything that Michigan does, including making things, driving cars and burning coal.

Tell me – who is it that has been whining for years about losing manufacturing jobs to overseas competitors? Who has thumped the podium about “outsourcing”? Who has claimed to be the champion of the working man?

The same crew that wants to enact draconian taxes which will affect the very companies and jobs they claim they want to save or create. And while the companies will do all they can to pass on the cost to the consumer (thereby negating any tax cut), they will have to absorb some of the cost to stay competitive.

Doing so will drive up the cost of nearly everything and will amount to a major tax increase for American consumers.

Or companies can go to countries who don’t have cap-and-trade laws such as China and India and set up there. Of course if they do, they’ll be called “unpatriotic” and the government who forced the issue will declare them the problem.

And the net result?

The proposed tax would take effect in 2012 and has the very real potential to throw the nation back into recession, if indeed the expected recovery has arrived by then. It’s impossible to raise costs for such basics as manufacturing and energy production by more than half a trillion dollars over a decade and not have the effects felt across the economy.

Economic common sense. But you see, the 2012 effective date is a result of political calculation. If we are seen to be climbing out of the recession by 2011, most likely the Obama administration will get a second term. After that they couldn’t care less how they or their policies are viewed. And it is far enough from 2016 that they think it may be politically survivable for the Democrats.

However it also means that if the GOP starts hammering on this now and making the same sense the Detroit News editorial board is making, there’s a chance they can use it as an issue to try to recapture power. That assumes, of course, they have the smarts and the spine to stand up, make the consequences known and ensure they frame the argument instead of letting the Democrats spin it away.

How likely is that?

Oh, and just for the record:

A similar program in Europe hasn’t worked. European automakers complained about carbon dioxide limits the European Union proposed in 2007 as damaging to the economy.

Ya think?

~McQ