Top of the News: At the risk of starting the week with jargon, consider discontinuity and tipping points. And consider the historic Chapter 11 bankruptcy filing of General Motors.
As regular readers know, I covered GM in the 1980s and part of the 1990s. This morning, I got an email from a former colleague saying, “Who would have believed it.” He was being somewhat ironic, because much of the serious financial press had forecast big trouble for GM for years, even as it kept bobbing back up again.
If ever there was a company unprepared for discontinuity — that the next 30 years won’t be a replay of the past 30 years — it was GM. For years, consumer and corporate debt could rise seemingly without consequences. Gasoline prices were low and SUVs were highly profitable. Long single-occupant drives in gas guzzlers was that “non-negotiable” American lifestyle and “corporate governance” were words said with an arched eyebrow at the country clubs of Grosse Pointe.
Then the world changed suddenly. Many things hit tipping points and GM was unprepared. GM had been watching Toyota for years — a company also suffering now, but like the GM of the Great Depression, in no danger of going under. GM executives could make no sustained strategic competitive response other than repeated job cuts, union givebacks and plant closings. The promise of Saturn was tossed aside. Worldwide, the company expanded while ignoring the cancer of its North American situation.
Creative destruction purists would say, “Let GM liquidate and let the market rule.” Obviously the Obama administration — and even its predecessor — disagrees. In a wide-open world market with healthier established players and looming rivals, can even a slimmed-down GM compete? Or is the government just dressing it up, a la Conrail, for the eventual sale of whatever remains?
The Back Story: The GM news will crowd out notice of Treasury Secretary Tim Geithner’s trip to China. Speaking at Peking University, Geithner tried to reassure one of our largest creditor nations that the U.S. financial system “is starting to heal” and better transparency measures have been enacted.
“A successful transition to a more balanced and stable global economy will require very substantial changes to economic policy and financial regulation around the world,” he said. “But some of the most important of those changes will have to come in the United States and China.”
He said China shouldn’t expect U.S. consumer purchases to be the big growth engine that they had been in the past. And China must turn from an export-driven economy to stimulating domestic demand — including for American products.
Today’s Econ Haiku:
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Bonds are worried. Not the Dow
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