GM, already has a plan to offload the legacy healthcare issue to a union managed fund, starting in 2010. It is claimed that the biggest loses at GM, are caused by GMAC (Ditech etc. bad loans), which it still owns 49% of. Without the legacy healthcare costs, and some nonwage union issues, (such as full pay during shutdowns), supposedly GMs costs would be much lower.

Basically, TPTB have tried to have a consumer-driven economy while depressing wages. Their answer to "how can people buy cars with depressed wages" has been to have the car buyers run up unsustainable debt. Welcome to 2008.

This is the nature of capitalism and the root cause of crises. The increasing use of debt has been one the chief means of extending the length of the time between crises at the risk of deepening them when they finally do come.

Right now, it looks like the credit shortage will totally destroy the automobile industry; it will price itself out of existance.

How much of the average car cost represents credit? How many people go into a dealership and buy a car with cash?

Not too many.

With credit declining the amount available to individual purchasers to buy a car shrinks. This amount is certainly substantially less than the average cost of a new car in the US, that amount being almost $30,000:

A new car is second only to a home as the most expensive purchase many consumers make. According to the National Automobile Dealers Association, the average price of a new car sold in the United States is $28,400. That’s why it’s important to know how to make a smart deal.

http://www.ftc.gov/bcp/edu/pubs/consumer/autos/aut11.shtm

The amount taken as down payment is instructive, more than $3,000 (with the balance financed by the auto makers themselves). Certainly, people would pay more if they had the means:

Tighter credit standards are forcing many car buyers to put down more cash up front to get a loan.

The average down payment last month was $3,108, up 42% from $2,194 in the same month two years ago, Edmunds.com reports. That's the highest average down payment since the car-buying research site began tracking the number in 2002.

http://www.usatoday.com/money/autos/2008-10-16-automakers-down-payment-c...

The prices of used cars is a better guide since most buyers pay cash for their used cars. Here the most recent figures (2004) suggest the average for a used car at wholesale auction is a little more than $10,000.

The auto auction company ADESA Inc. of Carmel, Ind., reports the average wholesale price in August was $9,086. That was 1.4 percent higher than the price of $8,959 in the year-ago month. It was 2.2 percent lower than the July average price of $9,295.

http://findarticles.com/p/articles/mi_hb6674/is_/ai_n26624947

It becomes a bit of an art to discern what a car would cost if credit is unavailable. It is hard to see people being able in an economically constrained situation to raise ten or more thousands of dollars in cash ... to buy a car. At the same time, it is hard to see an auto industry surviving with their products selling for less than half the price they sell for now. It is also difficult to see any 'alternative' fuel vehicles being viable since costs of production and developement of these vehicles is effectively subsidized by the sale of larger, more profitable SUV's and pick up trucks.

The auto industry is exceptionally complex. The supply chain, the manufacturing process, financing, dealer network, aftermarket suppliers, (not to mention fuel inputs and infrastructure) all require oceans of cash. Removing any part and the whole fractures. The entire system requires second by second management in the current 'just in time' regime. The current situation ... where the US makers are reduced to beggary ... is the result of relatively small inputs against the cost structure of the industry. Even low cost producers are having serious problems:

http://finance.yahoo.com/news/Toyota-to-reduce-output-apf-13616149.html

http://www.nytimes.com/2008/11/19/business/worldbusiness/19chinaauto.htm...

I believe that one should be required to post a comment with a negative greenie. Cheap shots are meaningless

Profit simply enables reinvestment in making the company better and more efficient. Without a profit motive, no one would do anything but sit around.

At least that is what I learned in the cartoon about the shoemaker and the elves I saw as a youngster (the first part -- the second part is just what I'd do).

Hope that qualifies for a negative.

BS

I believe that one should be required to post a comment with a negative greenie.

I don't. The last thing we need is more clutter. If they don't want to explain it, fine.

I find it absolutely halirious the description of socialized health care and then calling the current system better, when in fact everything they say that socialized health care is, isn't and all the current system is, is what they claim socialized health care is.

it was claimed that in socialized health care one will be told where he or she can get care, yet in the so called better privatized and profit based system. THATS exactly what happens, which you point out. if you have x insurance, you can only go to who takes x insurance.

I have had a 20 year interest in the American health care system. I grew up in Canada, went to medical school at McGill University, then moved to the US for residency in Family Medicine and worked in community health centers until I "retired" a few months ago to take care of my kids. My husband is a specialist physician, recently graduated.

Here's my take on Tom Daschle's proposals for health care. I am not terribly excited, but we shall see. The following are quotes from a Huffington Post article at http://www.huffingtonpost.com/sen-tom-daschle/progressive-solutions-to-_...

There are three fundamental problems plaguing our health-care system today: skyrocketing costs, lack of access, and disparity of quality care.

Today, 47 million Americans lack health-care coverage. Just as troubling is the fact that medical bills have become the leading cause of bankruptcies in the United States. It is projected that the U.S. will spend nearly $2.4 trillion on health care this year. That is almost $7,500 per person. Premiums have increased [PDF] nearly 98% since 2000. Most troubling is that this increase is nearly four times faster than the growth of wages during the same period.

For individuals that do have health care coverage, the quality of health care they receive is often inadequate. For instance, the U.S. lags behind other industrialized countries in basic health measures such as life expectancy and infant mortality. Moreover, we have less same-day access to primary-care physicians as individuals in other countries. And, it is estimated that 98,000 Americans die annually from medical errors, caused by bad physician handwriting, incomplete charts, or other "low-tech" problems.

So far, so good. Except, I would say, that in all the literature I read about infant mortality and life expectancy, it was less than clear that those are problems that can be remedied by medical care. The Surgeon General was quoted as saying that medical care accounts for 10% of health outcomes. Those two, particularly, are strongly related to income inequality, public policy, drug use, racism, you name it.

Onward with the quote:

The time is now for us to take this challenge head-on. What we need is a change in approach. In my book, Critical: What We Can Do About the American Health-Care Crisis, I have proposed a Federal Health Board (emphasis added) that would be a foundation from which we could address all three problems. In many ways, the Federal Health Board would resemble our current Federal Reserve Board for the banking industry. Just as the Federal Reserve ensures certain standards, transparency and performance for our banking industry, the Fed Health would ensure harmonization across public programs of health-care protocols, benefits, and transparency. Ultimately, the Fed Health would offer a public framework within which a private health-care system could operate more effectively and efficiently.

I'm not sure comparing anything to the financial system works to anyone's favor in these times, but anyway, interesting.

The Fed Health could help reduce administrative costs. Roughly 30 cents of every dollar in health care is spent on administration rather than health benefits. Our administrative costs, on a per capita basis, are seven times higher than that of our peer nations. Each state has their own system for Medicaid and insurance regulation. We have different health-care systems for active duty military members versus veterans. And private insurers spend billions trying to enroll the healthy and avoid the sick. A Federal Health Board that sets evidence-based standards for benefits and quality for federal programs and insurance will lower this complexity and thus costs.

We already have programs with low administrative costs, called Medicaid and Medicare. I'll admit, I have been impressed by my firsthand view of the Canadian medical system. I'm not sure how this will be an improvement.

The Fed Health could also promote quality and save money by making the health-care system more transparent. Today, the lack of transparency in the system makes it virtually impossible for people to grasp what they are paying for and who provides them with the best care. This shroud of secrecy allows for wildly different prices for similar quality care. For example, a Pennsylvania report on heart surgery found hospitals with similar outcomes charge from $20,000 to $100,000. The Board, by ensuring transparency, would increase competition based on price and quality rather than cream skimming and cost sharing.

Oy vay... I thought we had established the reasons why competition in health care is of a completely different stripe than, say toasters, or cars... I want to see who will shop around while suffering from undiagnosed symptoms to determine the best place for treatment of what they don't yet know they have.

Additionally, the Fed Health could set standards for quality and coverage, promoting best practices and identifying the trade-offs on services. It would use information on the comparative clinical and cost effectiveness of different treatment options to set standards for Federal programs. The Congressional Budget Office recently credited this idea with the potential to produce substantial system-wide savings.

That could be useful.

But the Federal Health Board is just one element of comprehensive reform that would drive down the cost of the system. Cost shifting, preventable illness, and uncontrolled chronic disease add to our health care costs - and will be reduced by insuring all Americans.

Unfortunately, I don't believe this. As a practicing family physician, I can tell you I was waging a losing battle against the food "industry", and what unemployment does to alcoholism rates. Preventive care is not cost effective, except in the case of vaccinations. Sorry. (Not that we shouldn't have health care, but it's not to save money, it's to improve quality of life).

The decisions made by the Federal Health Board would be tough. But this model undoubtedly beats the alternative. Imagine what would happen if Congress revoked the Federal Reserve's power to set interest rates and decided to legislate new interests rates instead. It would be a disaster - no less so than the results of mismanagement of our health-care system.

OK. Too bad. Expected more from the Hopefully Smarter Than Yeast President-Elect.

I wonder if Hillary would have preferred this post...versus Secty of State.

could it be the downside of the market is a response to Obamas cabinet picks?

You appear to be happy for people earning low wages, perhaps $7 an hour, to either provide for medical attention for themselves and their families or go without, and what is more you refer to them with contempt as being wasters for not having put sufficient aside from their vast incomes to pay a doctor who might get $100,000 a year.

One perhaps hopes that in the world you wish to inhabit, if you were taken hostage for ransom as is commonplace in the more 'forthright' societies you seem to admire such as in South America, that no efforts will be made to pay your ransom or attention paid to your whining about being tortured since you did not provide enough for bodyguards.

Cancer can be torture too, you know.

Your lack of humanity is hopefully merely due to immaturity.

Downgrade explanation: I believe Canadians would not overwhelmingly vote for an American medical system for themselves. Having been a physician in both systems, I can tell you Canada's is more fair, though income-related health disparities persist. The final observation is that Canada's life expectancy is higher, that this is probably the result of public policy, and it is my strong belief that we should stop harping on health care and implement the policies that will result in the least suffering. Thinking outside the box. Finding the spot with the best leverage.

Also, see DaveMart below - I agree. I have met thousands of low-income people, and can vouch for having acquired a respect for the strength of character it takes to keep on going when you are homeless or doing worse than the majority of society. The attitude that the poor are less virtuous (or they wouldn't be poor) is deplorable.

Davey Boy,,,,don't know much about the US?

The new plants built in Indiana, my home state another lifetime ago, as a rule, hire the older more mature workers for the lines. They have that, Midwestern work ethic not found in the youth of today or in the UK. The last Greenfield Auto Plant was built by Honda, actually a very good company in many ways, and I believe just opened a short time ago in Indiana. Cost of transportation for the finished product to market, the Steel, made and finished in the Midwest, also has a great deal to do with transportation cost. Tax abatements from local governments go into the mix as well. Pensions and healthcare have actually very little to do with it.

Almost nothing is made in Detroit or the UK any longer. Except crap cars.

There is also no "right" for individuals to have high-paying jobs.

Thanks

Many part suppliers are shared by Japanese and American auto companies. Toyota said they are worried about GM failing because many of their shared suppliers could go out of business.

5) result. paradise on earth for ever, and I get rich because I have a lot invested in solar thermal.

Why do you advocate solar when wind is cheaper?

Probably no solution lasts forever, but without population stabilization (preferably prefaced by population decline) as one of you bullets, your plan is guaranteed not to work forever. Aren't you lacking some other things, like the building of high speed rail that will be used for both passengers and freight?

And olur generation will have gotten off relativly unharmed .. there will be suffering aplenty but it seems to me now many just want to postpone the suffering past their inevitable death.

The Chinese will try to keep things going. But if it starts getting too silly, they have a better plan B than just about anyone else.
They had a command economy until the recent past, and many of the structures needed to resurrect it.
If it becomes clear that the world economy is going down the pan, then they will revert to the planned approach, and with great difficulty could divert the resources currently going to export to swap trades and infrastructure investment..
My guess is that in this world they will also want to strengthen their military, so between that an revamping energy production they should have plenty to keep them busy.

And to think that people used to say the Chinese economy would do wonders during a US/European meltdown. Why is then that they are worried about a recession and just had to inject $550 billion into their own economy to make up for the shortfall in exports? We are all connected. If the US or Eurozone goes south, so will the Asian Tiger economies.

Bush's plan was to avoid getting involved in foreign wars, and look how that turned out.

I think it might turn out to be very difficult to avoid conflict as resources decrease and the economy worsens. Might not be in Obama's term, but I am expecting more wars.

But another world war might not be the tonic for the economy Denninger imagines. It still comes down to resources.

Actually PE Obama's stated plan is to pull out of Iraq and escalate the war in Afghanistan and increase efforts to battle Al Quida on other fronts. Pick your front....the body bags are the same color.

War is not the answer here (although it was in the 1940's because of the threats of Imperial Japan and Nazi Germany).

The answer is the following:

1. Make investments reducing dependence on foreign (and even doestic) sources of nonrenewable energy
2. Make investments increasing use of renewable energy
3. Make investments increasing energy conservation

That's it. That's the war.

There need to be investments in things like local and long distance rail; investments in energy saving technologies; tax breaks for those using energy saving technologies (like a 100% tax break on energy efficient windows, insulation and geothermal heat exchange for starters); investments in nuclear, and more specific breeder reactors and fuel reprocessing; investments in wind, tide, ocean current and hydro technology; investments in energy efficient lighting technology; investment in vehicle fuel efficiency and/or electrical vehicles; and investments in the electrical grid. Hell, even investments in things like roundabouts in new construction projects.

There also need to be laws and regulations reducing energy consumption. Laws to eliminate incandescent lighting; to eliminate poor fuel efficiency cars and trucks; and even possibly a quota system for fuel consumption.

All of these investments (on average) will pay themselves back. These have real, tangible assets as deliverables, assets that will reduce our trade deficit and increase the money staying in America. They will provide a permanent jolt to the economy... For example, if I spend $500 less to heat my home this winter because I put in better insulation and windows, I'll spend it on something else (It's the American way!) or I'll save (or invest) it and help someone else indirectly with my savings or investment.

If there must be a war, the war must be against spending on energy, like oil, coal, gas and a war to spend more on renewables or not spending on energy at all...

I think it was more than that. The US had a lot of natural resources. And before we got involved in the war, we sold goods to all sides. Afterwards, we were in a privileged position because aside from Pearl Harbor, the war did not happen on our soil. Our factories and bridges weren't bombed. We didn't have to rebuild.

That certainly seems to be close to what happened in the UK during WWII: you had dramatically reduced consumption (supported by the populace), an awful lot of men busy on the fronts and women busy in factories rather than engaged in dubious entrepreneurship, and industrial capacity being built up on war work that could be used after the war. Obviously many places got blasted heavily, but I honestly don't know how much that contributed to demand creation after the war. I suspect it's more the period of low consumption relative to industrial output that was a bigger issue than command economy per se. (It didn't hurt that we still had an empire generating income at that point of course.)

Even then the UK came out finanically badly (partly I gather because we didn't bring home and demob the troops quickly enough and kept paying them for about six-nine months longer than is apparently viewed as appropriate in hindsight) and needed a loan from the US that we didn't finish paying off until 2004 (?).

There is only one right question: What will best enable us to at least PRESERVE, and if possible IMPROVE, our net national WEALTH?

I'm not sure why wealth would have anything to do with the "one right question." This seems to me to be an unwarranted acceptance that the goals of the current system are the correct ones. Personally, I think any future worth living will come from giving up on the pursuit of wealth as a measure of our lives.

For an inflationary strategy to work to "heal" debt would require us to somehow also inflate wages.

Not so. Here's the math:

Let's say I'm Harry Homeowner. It's 2008 and I have a $100,000 mortgage. I work hard, and earn about $50K/year.

Inflation hits; it runs 10% annually for 5 years. At the end of year 5, prices are (roughly) 60% higher than in 2008.

My mortgage, which might still be $100,000(ish, assuming I don't pay off any principal), is now worth 100,000/1.6 = 62,500 in 2008 dollars. In other words, $37,500 of my mortgage has disappeared due to inflation.

However, I only get 3% raises, and end up with a salary only 16% higher at the end of year 5... or $58,000. When compared to 2008 dollars, however, I make $58,000/1.6 = $36,000/year.

My real wage went down.

But my real debt also went down too.

I fully expect this to happen in the future... Which is why I bought my first house recently.

Time will tell.

No, I don't think wage controls will be put in place to raise wages. On the contrary, if wage and price controls (The two tend to go together.) are put into place the purpose will be to limit increases in wages and prices, just as happened during the Nixon administration.

Rising prices will tend to pull up wages, though I expect the increase in wages will be smaller than the increases in prices. Note that rising prices and wages will tend to reinflate housing prices, and thus they provide a way to make houses worth more than the mortgages against them.

Because I expect wages to rise, say 5% when price levels go up, say, 10%, the result will be a lower standard of living. I expect declining oil production to lower our living standards in two ways:

1) Most painfully with huge increases in unemployment, eventually rising to the 25%-40% range.

2) Double-digit price inflation accompanied by only single digit increases in wages; in other words wage earners lose much real income over the years as real wages fall eventually to about half what they are now.

We're never going to pay off the national debt, but we can inflate our way out of most of it--and there is not one single thing the Chinese or Japanese can do to stop the Fed from monetizing huge government deficits. Who cares if foreigners stop buying U.S. Treasury securities? The Fed can buy U.S. Treasuries without limit, and I expect them to do so over the next few years.

Your scenario assumes that oil magically disappears overnight. Why wouldn't the Iraqi army have lots of oil?

The answer in a word is ... 'Transport'. The military uses a 'just in time' fuel and logistic delivery system just like General Motors. Our forces don't use local fuel; I'm not sure Iraq even produces a fuel that could be used in US military aircraft. The Iraqis get their fuel through US contractors.

The miitary is top heavy with fuel guzzling 'assets' that all have to function simultaneously to be effective. Everything in the military requires a vehicle to provide power, command and control, communications, food and ammunition supply plus firepower. On foot, without helicopers and aircraft, trucks and AFV's, the US military is just another army. Without ammunition, food and water, the US military is a defeated other army.

I look at the military as a microcosm of how the rest of the country does business and its vulnerabilites are identical with ... Wall Street's. There is too much sunk capital directed at inefficient technologies that are politically expedient to produce but create vulnerabilities because they need ever- more systems and inputs to support them.

I've made this argument before and the response is quite similar to the 'technology will solve the problem in the nick of time' response that is given to energy shortage matters. If one part of a system - say, food delivery, here - is vulnerable in a particular way, the another part of the same system is equally vulnerable in the same way, no?

Murphy's Law usually rules ...

Most of the world uses the us$ for trade or as reserve. A lot of countries even use the us$ in markets, as no one trusts the local currencies. So a crash of the us$ will affect everyone, not just in the USA.

For sure. It would be a catastrophe. That's why I am buying a years worth of food, water and other supplies. Best to be prepared ... for the worst.

I'm curious to where you got this information? According to this weeks reports Imports are down in both the 4 week avg vs. last year and cumulative to date:

Total Net Imports
4-week avg: 11,171(2008) 11,511(2007)
Cummulative year to date: 11,117 (2008) 12,130 (2007)

Looks like a drop to me.

I believe that many people's idea of non-discretionary will have been distorted by recent history and will also be found to have no "raison d'etre". If Services contract from 70% of the economy to say 20% then there will be little distinction, all and sundry may find themselves out on the street.

Anyone with dependency on paid employment for their basic survival needs is on the roulette table and only one spin away from potential life threatening poverty. ELP as a principle is sound, but needs to be done properly to succeed.

I often wonder, even with well briefed people such as here on TOD, how many have actually done enough to survive what's coming? How many still need BAU to continue to keep a roof over their heads, food on their table and enough warmth to get them through the winter?

Prechter similarly got everything right but the timing in Conquer the Crash.

China has huge inequalities. If you split it up into 50 countries, then the rich cities would probably pollute as much or more than western countries.

A lot of elites in poor countries are using the 'on average we don't pollute much' as an excuse for their extremely wasteful lifestyles. China is one of the places where Hummers are still selling like hot cakes.