Chrysler turns down Government Loan for Guarantee to keep Minivans in Windsor

Posted by PITHOCRATES - March 8th, 2014

Week in Review

Cities and governments have long loved big industry.  Unions, too.  Because they’re big.  And are difficult to move. Such as an automobile assembly plant.  They take a lot of real estate.  Require a lot of specialized production and assembly equipment.  And a lot of infrastructure to support them.  Making them very difficult to move.  But not impossible (see Chrysler spurns government money, Windsor to build minivans posted 3/4/2014 on CBC News Windsor).

Chrysler will continue to build its popular minivan in Windsor, Ont., and has withdrawn all requests for government financial assistance in relation to the redevelopment of its assembly plants in Windsor and Brampton…

At the Detroit auto show seven weeks ago, Chrysler CEO Sergio Marchionne said that changes at the Windsor plant alone would cost at least $2 billion, and that Chrysler needed government help to finance the project.

Chrysler said in a media release Tuesday it will now “fund out of its own resources whatever capital requirements the Canadian operations require.”

Industry Minister James Moore said the government’s commitment to the auto industry is strong and he was surprised by Chrysler’s decision.

Essex Conservative MP Jeff Watson, whose riding is just south of Windsor, said he believed talks were going well.

“We were prepared to invest in exchange for guarantees for Canadian production and a Canadian supply chain,” Watson said.

Money from the government doesn’t come without strings.  And the string here was a guarantee that Chrysler wouldn’t leave.  No matter how costly the government or union contracts made it to stay in Windsor.  Costs that Chrysler has to recover in the sales price of their cars.  Which can’t be so high as to price them out of the market.  So Chrysler chose to spend their own money.  So they didn’t get stuck in an adverse economic situation when trying to compete in a global market.

“It is clear to us that our projects are now being used as a political football, a process that, in our view, apart from being unnecessary and ill-advised, will ultimately not be to the benefit of Chrysler,” the company said in a news release.

“As a result, Chrysler will deal in an unfettered fashion with its strategic alternatives regarding product development and allocation, and will fund out of its own resources whatever capital requirements the Canadian operations require.”

The government wanted what was best for them.  Economic activity they could tax.  While Chrysler wanted what was best for them.  Being able to sell cars at market prices.  And leaving their options open in the future.  Should it become too costly to continue to build cars in Canada.  Due to the cost of labor.  Or new regulatory policies.  Or higher taxes to fund a welfare state struggling under the costs of an aging population.  Governments are desperate for new tax revenue.  And will make almost any promise to get it.  Making long-term deals with governments risky.

According to the Ontario government, the auto sector employs 94,000 Ontarians, and supports as many as 500,000 families through indirect jobs…

Unifor Local 444 president Dino Chiodo, who represents hourly employees in Windsor, said he wasn’t completely surprised by Marchionne’s announcement…

Chiodo said Tuesday’s announcement is short of the $2-billion retooling and flexible manufacturing line employees were looking for in Windsor…

Chiodo said a $2.3-billion investment would secure three generations of minivans, which could secure jobs for decades…

Marchionne also wants union concessions.

Yes, they love the jobs these corporations create.  And all that economic activity those jobs create.  Economic activity they can’t create.  But they still hate corporations.  That’s why they tax them.  Regulate them.  Call them greedy.  Exploiters of labor.  And that the only way they can get them to do something decent is by making deals with them that favor them and not these evil corporations.  But sometimes these evil corporations don’t enter agreements that may harm them in the long run.  And when they do governments and unions panic.  As they fear they may have let a cash piñata slip through their fingers.  Which is a problem for them.  For they can’t create a single job those evil corporations can.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , ,

President Obama: Worse President than George W. Bush? Or Worst President Ever?

Posted by PITHOCRATES - July 8th, 2011

Obama Rolling up his Sleeves and Wagging his Finger

President Obama has taken out his wagging finger.  And he has wagged it.  Scolding Republicans to grow up and be like his daughters.  It is interesting he referred his daughters for an example of responsible behavior.  And not himself.  Because his track record on acting responsibly hasn’t been all that good as Charles Krauthammer points out and lists some of his failings (see The Elmendorf Rule by Charles Krauthammer posted 7/8/2011 on The Washington Post).

• Ignored the debt problem for two years by kicking the can to a commission.

• Promptly ignored the commission’s December 2010 report.

• Delivered a State of the Union address in January that didn’t even mention the word “debt” until 35 minutes in.

• Delivered in February a budget so embarrassing — it actually increased the deficit — that the Democratic-controlled Senate rejected it 97 to 0.

• Took a budget mulligan with his April 13 debt-plan speech. Asked in Congress how this new “budget framework” would affect the actual federal budget, Congressional Budget Office Director Doug Elmendorf replied with a devastating “We don’t estimate speeches.” You can’t assign numbers to air.

Not even a modicum of responsibility there.  So he’s rather like the pot calling the kettle black.  He should perhaps have said “do as I say and not as I do even though I do not do as I say you should do but that’s okay because I’m smarter than you so there.  When will all of you finally get this?”

But the Republicans, insolent as they are, refuse to budge.  So Obama had to bring out the wagging finger to discipline these insolent children.  Advising them to be more like his own children.  Who do their homework in a timely manner.

My compliments. But the Republican House did do its homework. It’s called a budget. It passed the House on April 15. The Democratic Senate has produced no budget. Not just this year, but for two years running. As for the schoolmaster in chief, he produced two 2012 budget facsimiles: The first (February) was a farce and the second (April) was empty, dismissed by the CBO as nothing but words untethered to real numbers.

Obama has run disastrous annual deficits of around $1.5 trillion while insisting for months on a “clean” debt-ceiling increase, i.e., with no budget cuts at all. Yet suddenly he now rises to champion major long-term debt reduction, scorning any suggestions of a short-term debt-limit deal as can-kicking.

That’s right, neither the Democrats nor Obama has done any responsible fiscal legislating/governing for the past two years.  Looks like the responsible shoe is on the other foot.  And those deficits?  They’re records.  Over 5 times larger than those world-ending Reagan deficits.  Yet he has the audacity to wag that finger at the Republicans for not being responsible?  Perhaps he should be wagging that finger at himself. 

And what have been Obama’s own debt-reduction ideas? In last week’s news conference, he railed against the tax break for corporate jet owners — six times.

I did the math. If you collect that tax for the next 5,000 years — that is not a typo — it would equal the new debt Obama racked up last year alone. To put it another way, if we had levied this tax at the time of John the Baptist and collected it every year since — first in shekels, then in dollars — we would have 500 years to go before we could offset half of the debt added by Obama last year alone.

Obama’s other favorite debt-reduction refrain is canceling an oil-company tax break. Well, if you collect that oil tax and the corporate jet tax for the next 50 years — you will not yet have offset Obama’s deficit spending for February 2011.

It is clear the president is in reelection mode.  Because he’s stoking the fires of class warfare.  Rich people fly jets.  And own oil companies.  Rich people are getting sweetheart tax deals.  Saving them billions.  And he wants to put a stop to this unfairness.  And make it fair.  It won’t help to erase the deficit at all.  But it gives you something to campaign on.  Which he needs.  Because his policies have been an economic train wreck. 

The June Jobs Report is worse than May’s

How bad have those policies been?  The June jobs report is in.  And it’s worse than May’s (see June Jobs Report Lands With A Thud: Up Just 18,000 by Steve Schaefer posted 7/8/2011 on Forbes).

In a stark reminder that the U.S. economy has been mired in slow growth, the Labor Department reported Friday that nonfarm payrolls added just 18,000 jobs in June and unemployment came in at 9.2%…

The stunning lack of improvement in June’s report – April’s payrolls figure was revised to 217,000 from 232,000 and May’s cut by more than half to 25,000 from 54,000 – rocked Wall Street Friday morning, as index futures sharply reversed after indicating small opening gains earlier. The Dow Jones industrial average, S&P 500 and Nasdaq were all signaling a red start to the trading session after solid gains Thursday.

And as bad as the May report was, the current report revises the May numbers down.  Fewer jobs were added than originally reported.  April’s, too.  It’s a trend.  Both a downward trend in job creation.  And the revising of previous reports.  Which means the anemic 18,000 jobs reported in June will likely be revised down in the July report.  There’s no good economic news out there.  The stimulus spending failed in a big way.  Which is why Obama is resorting to class warfare.  Because economically he has been an utter and absolute failure.

The June Jobs Report is even worse than it Says

And as bad as the June report was, it’s worse (see Without Dropouts, Jobless Rate Would Be Over 11% by Phil Izzo posted 7/8/2011 on The Wall Street Journal).

The share of the population in the jobs market, called the labor-force participation rate, fell to 64.1% last month — the lowest level since 1984 when women were still just beginning to enter in full force… The participation rate was 66% at the start of the recession and 65.7% when the recovery started in June 2009. If the participation rate were still at that level, the unemployment rate would be more than 11% right now…

There’s also a problem of underemployment. A comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs. That number shot up in June to 16.2% from 15.8% a month earlier.

If we count the people who have given up looking for a job the actual unemployment rate would be as a high as 11%.  If you add in all those only working part-time because they can’t find a full-time job the unemployment rate jumps up to 16.2%.  These are horrible numbers.  How horrible?  These are more Great Depression numbers than George W. Bush numbers.

The Green Energy Bubble

America became the world’s largest economy thanks to the innovation of the private sector.  Great entrepreneurs like Andrew Carnegie, John D. Rockefeller and Henry Ford took risks.  The government didn’t have to tell them how to make steel better, more plentiful and cheaper.  Or how to make gasoline better, more plentiful and cheaper.  Or how to make automobiles better, more plentiful and cheaper.  That’s capitalism in the free market.  The private sector takes risks in pursuit of profits.  And when it does it makes things better, more plentiful and cheaper.  When people like Carnegie, Rockefeller and Ford are left alone to do what they know how to do best.  Create wealth.  And jobs.

Obama, on the other hand, believes he knows best.  That he’s smarter than these entrepreneurs.  And that he can direct the private sector to do his bidding.  Which, of course, in his Ivy League world, should result with economic activity.  And jobs.  Even if you’re telling people to build stuff the market doesn’t want (see The Coming Clean Tech Crash by Devon Swezey posted 7/7/2011 on Forbes).

The global clean energy industry is set for a major crash. The reason is simple. Clean energy is still much more expensive and less reliable than coal or gas, and in an era of heightened budget austerity the subsidies required to make clean energy artificially cheaper are becoming unsustainable.

Clean tech crashes are nothing new. The U.S. wind energy industry has collapsed three times before, first in the mid 1990s and most recently in 2002 and 2004 when Congress failed to extend the tax credit that made it profitable. But the impact and magnitude of the coming clean tech crash will far outstrip those of past years.

After one of the worst housing bubbles in U.S. history we now have a green energy bubble.  That’s about to pop.  And you know what happens when a bubble pops?  You get a recession.  To correct for all that malinvestment (to borrow a little Austrian School vernacular).  Which is pretty bad considering we’re still trying to recover from the first bubble.  And may very well still be in a recession despite all the massaging of economic data to say otherwise.  So if we’re still in a recession perhaps the pop of this bubble will push us into depression.  If we’re not in one already.  Based on those god-awful employment numbers.

As part of its effort to combat the economic recession, the federal government pumped nearly $80 billion in direct investment and tax credits into the clean energy sector, catalyzing an unprecedented industry expansion. Solar energy, for example, grew 67% in the United States in 2010. The U.S. wind energy industry also experienced unprecedented growth as a result of the generous Section 1603 clean energy stimulus program. The industry grew by 40% and added 10 GW of new turbines in 2009. Yet many of the federal subsidies that have driven such rapid growth are set to expire in the next few years, and clean energy remains unable to compete without them.

The crash won’t be limited to the United States. In many European countries, clean energy subsidies have become budget casualties as governments attempt to curb mounting deficits. Spain, Germany, France, Italy and the Czech Republic have all announced cuts to clean energy subsidies.

Can’t compete without them?  So what was the point in giving them all of those subsidies in the first place?  Were we forever going to pay for a more costly energy while less costly energy (i.e., fossil fuel) was available?  Apparently so.   Being that the life-blood of an economy is energy that would have just raised the cost of all businesses.  And the price of all consumer goods.  Less disposable income means less demand.  Less demand means fewer jobs.  Not a good plan, really.  Unless your goal is to put the country into a depression.

And the problem is global.  So the coming economic crisis will be global.  As if the European Union didn’t have enough financial crises on their hands already.  This could even hurt those emerging markets of China, India and Brazil.  Who depend on these export markets.  As we depend on them.  To buy our debt.

The U.S. has tried this clean energy before.  And all of these attempts ended in failure.  For the reasons already noted.  But if we’ve tried this so many times before, why haven’t we figured out how to do it right?  To find that innovation that makes it cost-competitive with fossil fuels?

Why is the United States still locked in this self-perpetuating boom-bust cycle in clean energy? The problem, according to a new essay by energy experts David Victor and Kassia Yanosek in this week’s Foreign Affairs, is that our system of clean energy subsidization is jury-rigged to support the deployment of only the least-risky and most mature clean energy technologies, while lacking clear incentives for continual innovation that could make clean energy competitive on cost with conventional energy sources. Rather, we should “invest in more innovative technologies that stand a better chance of competing with conventional energy sources over the long haul.” According to Victor and Yanosek, nearly seven-eighths of global clean energy investment goes toward deploying existing technologies that aren’t competitive without subsidy, while only a small share goes to encouraging innovation in existing technologies or developing new ones.

Oh, that’s why.  Because the government is in the business of picking winners and losers when it comes to the lottery of free government money.  Which is par for the course.  For government spending is about political cronyism.  That money is spent based on political forces.  Not market forces.  Which is a shame.  Because spending that money isn’t necessary.  Because there is an incentive to create cost-competitive green energy.  Unfortunately, that incentive is being distorted by the government subsidies.

It is clear that the current budgetary environment in the United States presents challenges to the viability of the fast-growing clean energy industry. But it also presents an opportunity. By repurposing existing clean energy policies and investing in clean energy innovation, the United States can be the first country to make clean energy cheap and reliable, a distinction that is sure to bring major economic benefits in a multi-trillion dollar energy market.

Get rid of all that malinvestment and that multi-trillion dollar energy market will provide the necessary incentive for the private sector to solve the green energy problem. Making it cost competitive with fossil fuels.  For whoever cracks that nut will be the next Carnegie.  The next Rockefeller.  The next Ford. 

You want to create a green energy market?  Okay, I’ll tell you how to do it.  Step one, get government the hell out of the way.  Step two, eliminate the capital gains tax.  That will motivate people to spend money on solving the problem because if they’re successful they’ll be richer than the Kennedys.  Step three, enjoy your green energy.

Barack Obama and his Keynesian Economics have Failed

President Obama has no chance of reelection if he has to run on his economic record.  Because his economic record may prove to be the worst of all time.  And he knows it.  Hence the finger wagging.  And the class warfare.  He has spent more than any other president.  And not just a little more.  A lot more.  Before him the worst post-war federal deficits were around $200-400 billion.  Since Obama they’re around $1.5 trillion.  And yet he scolds Republicans for being irresponsible because they refuse to raise the debt limit without getting real spending cuts.  As if the Republicans spent all of that money.  Not him.  Or his Democrats.  If he was so worried about defaulting on American debt obligations he shouldn’t have spent money his administration didn’t have.  But he did.  And now he’s wagging his finger at Republicans.

And what did we get for all that spending?  Further proof that he and his administration are economically incompetent.  Government spending doesn’t create jobs.  And government doesn’t know better than the private sector.  He can talk with all the righteous indignation and all-knowing condescension he wants but it doesn’t change that fact.  America’s greatest economic achievements and innovation was done without Government butting into the private sector.

Barack Obama and his Keynesian economics have failed.  Time to try something new.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Costs of European Socialism Bankrupting the EU?

Posted by PITHOCRATES - December 6th, 2010

European Socialism – Voting yourself the Treasury

The Left loves European Socialism.  They want it here.  They’ve been trying to get here.  All the while the Europeans are trying to move away from it there.

Socialism doesn’t work.  Once people learn they can vote themselves the treasury, they do.  It’s been the death knell of all democracies.  As those state benefits get bigger, they entice more people.  They say, “Work?  But why?”  Because many can live comfortably without working, many do.  And they sign up for those generous state benefits.

The problem is that there is no ‘secret stash’ of government money.  Everything they spend they take from us.  Those who work.  So taxes go up.  Working people get less.  And the government-dependent grows and becomes an important voting demographic.  And they vote.  They vote themselves the treasury.  And why not?  It’s not their money.  Not yet, at least.

The EU, the Euro and the ECB cannot Fix the Fundamental Flaw of Socialism

Eventually, the number of working people decrease.  And the number of those not working increase.  More and more people receive benefits.  And fewer and fewer people pay taxes to fund those benefits.  So they keep raising the taxes on those who work.  To pay those who don’t.  But they can only raise them so far.  Because people simply won’t work for free so their neighbor can live a better life.

And how is that European Socialism working?  Much like the people collecting those generous benefits.  It ain’t working either.  To compete against the economic power of the United States, they’re trying to become like the United States.  They created the European Union (EU).  A European Central Bank (ECB).  And a common currency (the Euro).  Because they thought bigger was better.  Because the United States is a big economic zone.

But the Europeans have a problem.  They’re still social democracies.  And the trends continued after the union and the Euro.  More people collecting benefits.  Fewer people paying taxes.  Some of these countries are going through debt crisis.  And as these countries implode in their financial crises, the affects are felt throughout the European Union (see Euro’s Worst to Come as Trichet Fails to Calm Crisis, Top Forecasters Say by Anchalee Worrachate posted 12/5/2010 on Bloomberg). 

The 16-nation currency’s [the Euro] first weekly gain against the dollar since Nov. 5 may prove short-lived amid mounting concern that more nations will need rescues. European Central Bank President Jean-Claude Trichet delayed the end of emergency stimulus measures last week and stepped up government-debt purchases as “acute” market tensions drove yields on Spanish and Italian bonds to the highest levels relative to German bunds since the euro started in 1999.

“We’re going to get a continuation of the problems that Ireland, Portugal, Spain and others are suffering,” said Callum Henderson, Standard Chartered’s global head of foreign-exchange research in Singapore. “The fundamental issue is these are countries that have relatively large debts, large budget deficits, large current-account deficits, they don’t have their own currency and they can’t cut interest rates. The only way they can get out of this is to have significant recessions.”

Once upon a time Europe was ablaze in war. The growth of nationalism brought nations into conflict with each other over land, food and resources.  They redrew their borders in blood.  Nations did not give up their national sovereignty without a fight.  Which makes the European Union that much remarkable.  What they fought to the death to prevent they now give up voluntarily.  Of course, when your nation is on the brink of bankruptcy, what have you got to lose?  Having someone else bail you out of your financial mess?

Can the Euro and the ECB Survive European Socialism?

A weak currency helps a nation to export goods.  The more they export the more economic activity they have.  And the more jobs.  And the more people to tax.  So a weak currency can be a good thing.

But a weak currency also carries some baggage.  If a nation is ‘printing money’ to pay for excessive state benefits, that will not only make the currency weak, it will also increase prices; it’ll take more of those weak dollars (or Euros, or Pounds, or Yen, etc.) to buy things.  Even government benefits.  This is counterproductive.  People have less purchasing power.  And the government has to tax, borrow or print more because they, too, have less purchasing power.

The United States debased its currency.  Which helped the Euro gain some strength.

Just a month ago the euro reached $1.4282, the strongest level since January, as traders sold the dollar on speculation the Federal Reserve would debase the greenback by printing more cash to purchase $600 billion of Treasuries in so-called quantitative easing.

But the Euro wasn’t getting stronger.  The dollar was just getting weaker.  Both currencies are losing value.  And with more member nations in the EU getting weaker, the stronger ones may bail to save themselves.

Taylor [chairman of FX Concepts LLC, the world’s biggest currency hedge fund] predicted some nations may leave the common currency. Stronger members “have to say ‘enough, you guys, get out of the euro,’” he said. “The risk that Spain and Italy will get into trouble is going to cause the euro to get quite weak.”

Spain and Italy follows Ireland.  Which followed France.  Which followed Greece.  Nations are struggling under the weight of their debts.  Is there a limit to how much the ECB can help?

The ECB will keep offering banks as much cash as they want through the first quarter over periods of as long as three months at a fixed interest rate, Trichet said. That marks a shift from last month, when he said that the ECB could start limiting access to its funds.

Time will tell.  The trends are going the wrong way, though.  And there are more countries that can fail.  And they don’t have their own currencies.  So they need the ECB.  And the ECB needs to save them.  To save European Socialism.  Much like the Soviet Union tried to save Soviet communism.  Which, of course, they didn’t.

The problem with the Soviet Union was Soviet communism.  And the problem with the EC is European Socialism.  Great big governmental bureaucracies fail.  Always have.  And always will.

The Europeans know what they need to do, though.  And they are doing it.  Cutting their spending.  Despite the rioting and the burning of some of their cities.  Even with all of that, they are NOT increasing their spending.  Or trying to reduce their deficits by increasing taxes.

As the euro region’s most-indebted nations cut spending to bring their deficits under control, a weaker euro will be needed to cushion their economies, said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the fifth most accurate forecaster.

Of course, they want a weaker Euro for their exports.  So the EU can sell their export products cheaper than the domestic products of the import countries.  Which those import countries will not welcome with open arms.  Because they’re trying to grow their economies, too.  But that’s a whole other story (if you’re interested you can read about how international trade wars brought about the Great Depression).

It’s European

Meanwhile, on the other side of the pond, we’re having our own financial problems.  Large debts, large budget deficits, large current-account deficits.  Just like the Europeans.  Only difference is that the Obama administration is trying increase taxes and spending to fix our problems.  The Left calls this economic stimulus.  Rational people just call it stupid.

The political Left likes all things European.  In fact, they want to be European.  So I say let’s be European.  Let’s cut our spending like the Europeans.  I mean, if the Europeans don’t want to be like us (tax and spend), perhaps we should be like them (cut spending).  After all, if it’s European, even the Left should find it the fashionable thing to do.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,