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General Motors, which has a market capitalization (in other words, an approximate market value) of $2.8 billion, is turning to the government for $50 billion in loans to help it cover the costs of promises made to retirees and to start building cars with greater fuel efficiency. Something smells funny about all this. Nobody wants to see GM (or Ford or Chrysler) go under, but how much is enough to subsidize businesses that have failed to make long-term plans? Once again, it's hard to imagine that anyone at the Big Three in Detroit has been sitting around planning for the next 100 years.
Speaking of huge bailouts, China is on the verge of putting out a four-trillion-yuan stimulus package to keep their economy afloat. Converted at current exchange rates, that's about $586 billion, but in proportion to their economy as a whole, it's about the same size as if our recent "stimulus" package had been $2.5 trillion. Any way you look at it, that's a huge amount of money for the Chinese government to pump into the economy to make up for what they're losing as Americans cut back.
Our Federal government has done diddly to cut back, though, in the past week: The Federal debt has grown by $50 billion since last week, registering in at $10.624 trillion today (an increase from $10.574 trillion last Sunday). According to my Money Scale, our debt has grown more in seven days than it would cost to upgrade the entire US air-travel navigation infrastructure to run on GPS. Positively astonishing.
Going back to the automakers, here's another astonishing thought: They're asking for billions of dollars from the Federal government to help them shift to building more fuel-efficient vehicles. But the Federal government doesn't have any money, either, so it's going to borrow that money. And what's the #4 largest source of lending to the US government? The oil-exporting countries. So we're being asked to borrow money from countries like Saudi Arabia, which made that money by selling us oil, to subsidize the companies that built the cars that consumed all that oil, so that they can build cars that burn less oil...because the people running those companies were too short-sighted to start building more fuel-efficient cars on their own? What kind of cosmic bunny-hole have we fallen into that anyone could consider this a sensible policy? It's like borrowing cash from a crack dealer to help pay for a trip to the Betty Ford Clinic -- because you have no money left after buying so much crack!
By the way, I stand by my plan for how to save General Motors.
As a lot of blame for the recent troubles in the financial markets is being directed at market economics, let it not be forgotten that government has shown itself to be a lousy regulator, having utterly failed to keep Fannie Mae and Freddie Mac out of trouble. It's hard to believe that we'll be better off with more government regulation than we would have been with more vigilance among shareholders.
Two news publications are reading the writing on the wall and making big moves without government bailouts: The Christian Science Monitor, a daily newspaper, is going to become a weekly print publication, and US News and World Report, a weekly newsmagazine, is going to a monthly printing schedule. Both publications are planning to increase their online focus in order to replace their former paper-bound editions.
Two notes on how we're experiencing a real "Back to the Future" moment: Thanks to the thumping that stocks have taken lately, the S&P 500 Index is at right about the same level it was in May 2003. Meanwhile, judging from the gas prices Brian Dean and I each saw en route to the radio station tonight ($1.77 a gallon), gas prices are at roughly June 2004 levels. For those not currently strapped for cash, this would be an excellent time to take the money you're saving thanks to (very temporary) low gas prices and put them into sensible stocks.
One thing we desperately need to revive in our culture is an ethos of saving. The average American saves less than 1% of his or her income. That's a preposterously low amount. No one claims we have to be like the Japanese (where the savings rate is more like 15%...yes, 15%), but there's no excuse for hanging out in the 1% range. A century ago, we were forced to save -- but not in the bank. In order to survive the winter, you had to can your own food and stockpile coal to keep from starving and freezing to death. We don't have to do those things now -- grocery stores provide fresh fruit year-round, and natural gas is delivered safely to most city-dwellers here in the Midwest. But just because we don't have to literally stockpile the things we need doesn't mean we're excused from having to save the money we might need just in case those things become unexpectedly scarce. And because we live, on average, decades longer than people did 100 years ago, we also have to save more for our lives after we're done working. Saving isn't something for other people to do for us...it has to be considered the kind of thing we all do, whether we're making $10 an hour or $100,000 a year.
Catch our podcast for this week.
Keywords in this show: automakers • Back to the Future • bailouts • China • Christian Science Monitor • Chrysler • coal • economic-stimulus packages • Fannie Mae • Federal debt • Ford • Freddie Mac • fuel efficiency • gas prices • General Motors • GPS • groceries • investing • Japan • oil • 100-year business plans • publishing • regulations • S&P 500 Index • Saudi Arabia • savings • stocks • stockpiles • subsidies • US News and World Report