GM, Ford Leading the U.S. Into a Socialized Utopia

Includes: F, GM
by: Robert Weinstein

With all the money that the US Fed, as well as other central bankers, are willing to put into the world economy, it might be tempting to think that inflation is just around the bend.

The first weakness in that theory, at least in the short run, is that the equities, bonds, real estate and job markets are still going down at a much faster pace than the Fed is pumping money into the system.

The second and more important weakness is that the US is heading further down to socialist utopia land by nationalizing just about everything that should be left to the free market to work out.

This nationalization of the auto industry is just the latest example.

While some may try to argue that the cost of letting the Big 3 fail is almost as much as the first (of many for sure) bailout that the government is to provide, this argument misses two important points from a taxpayer point of view.

First, that the cost of a bailout plus the cost of the failure and bankruptcy if they end up failing in the end (and they will) will cost more than twice as much as just letting them fail in the first place.

The second and even more important is the point that the automakers do not make vehicles at a price that people want to buy. Letting them go on without having to pay the price of failure will only keep auto prices higher and quality lower.

Some may believe that a government run board including a car czar will be what the industry needs. I would argue that having government-run anything is sure to be of lower standards and higher costs than the private industry can provide. If you think the domestic three have lost market share on their own, then just wait and see how they do with government boards to appease. This is a simple case of lose-lose and just a matter of how much the taxpayer losses and how long the circus goes on.

Do you think that once the economy gets back on its feet and things are going better as a whole that this socialization will go away? Think again. Take a look at rent control in NYC, a program setup in World War II. We still can't get rid of this obscene waste of taxpayers dollars and ball that is little more than a ball and chain on rentals in NYC due to politicians selling their soul to get reelected. Which bureaucrat do you think will be the first to raise their hand to eliminate their job when the time comes (if it actually does) to let the company go?

The best risk to reward trade that is available will be to allow the government to put its inept hands on this industry, which should allow the stocks to go higher on that utopic feeling of big brother helping out, and then to short the stock for interest as it sits there in never-never land.

The smart money will never bet on the government to make things better as the government has proven too many times in the past that it will cause more problems than it solves. In the meantime, the foreign automakers will grab a larger and larger share of the shrinking American auto market. Even worse, we will thank them for allowing some of our citizens to work in their factories as ownership in companies is no longer something that is appreciated in America.

Disclosure: no positions

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