Jeremy Needham

Turning Japanese: The Audacity of Reality (Part 3 of 3)

On Jan 30 09:13 AM BS Detector wrote:

> "...the National Debt will reach 100% of GDP during the Obama administration.
> When Argentina’s economy collapsed in 1998, their National Debt as
> a percentage of GDP was 65%."
>
> But the U.S. national debt as a percentage of GDP was more than 120%
> at the end of WWII. Not fair to compare the U.S. today with the U.S.
> then? Certainly more appropriate than comparing us with Argentina
> in 1998.

I don’t think either post-WWII United States or 98-01 Argentina are necessarily excellent comparables to our situation today. However, I do think the Argentina scenario is more related to the United States today. For starters, post-WWII U.S. had the majority of the world’s financial reserves and industrial capacity. Moreover, we had the financial strength, bargaining power and trading partners to produce our public debt down fairly quickly (that and the concept of today’s Household Debt at 100% to GDP and Financial-Sector Debt at 120% to GDP was a completely foreign concept). Argentina had many similarities to the United States, albeit on a much smaller scale. Between 1992 and 1997, Argentina ran over $20 billion of cumulative trade deficits which was fueled by cheap imports, much like one facet of the United States’ recent trade deficits. Annual deficits topped out at 2.5% of GDP (much less than what the United States is looking at this year) in 1999-2001 before something as small as the finance minister’s debt swap caused massive capital flight and shorting of sovereign debt. I would argue that the United States is in a roughly parallel situation today (albeit in relative terms we are in much worse shape) with our ‘advantage’ being the arguably misguided trust that treasury debt holders have in our solvency. If we weren’t so deeply entrenched in the international financial system, our creditors would have pulled the plug on Uncle Sam quite some time ago. That brings me back to Jim’s quote: “The Great Deniers say we are not Argentina. They say we are safe because the U.S. dollar is the reserve currency of the world. This is like jumping off a 20 story building and as you pass the 10th floor someone yells out the window asking how you are doing. You answer, ‘Good, so far’.” I hope I’m wrong about all of this. Perhaps if we can perform financial triage and bring our zombie banks into receivership a la Sweden, we might be able to mitigate the worst of this impending crash. If not, at least this time around Sweden is bailing out Volvo; we’ll need something to keep us safe.

The Case for Domestic Automakers

GM and Ford are actually profitable in Europe and make some of the best-selling automobiles on the continent. Besides, Europe as a whole has a much more level playing field in the auto market than the US. It's like comparing apples and oranges.


On Nov 19 04:42 AM from Holland wrote:

> In Europe the markets are open to any, Asian and US, automaker. Still
> the US cars did not sell well. Why? Because the quality sucks, the
> technical performance is poor, the design does not appeal. The only
> good thing I can think of it the price is low. But since we Europeans
> know that you get what you pay for the low price is more a warning
> than an attraction.
>
> US automakers face the truth. Your shoddy goods cannot compete in
> a global market. Succes [relative] in your local market hid that
> for a while but now anymore. I would put my money in succesfull industries.
> Not in the dinosaurs (unless you prefer living in the past).

Detroit's Hail Mary: Saving the Automakers

You may have a point that GM, Ford or Chrysler could continue to operate through a bankruptcy in some way, shape or form. However, it is highly speculative to imagine how that might pan out. One thing that worries me is that automobiles are a big-ticket durable goods item, which I would imagine requires a little more faith than purchasing an airline ticket. The research on this point is not very encouraging, so forgive me if I may have depicted a bit of a worst-case scenario:

www.trucktrend.com/fea...

On Nov 03 11:52 AM sumosama wrote:

> don't confuse bankruptcy with going out of business as the author
> does. there are many bankrupt companies still in operation. highly
> unlikely gm will shutter if it files for bkp.