Headed Swiftly for a Crash

For all the deluge of advice that the Obama transition team is receiving from every quarter, publicly and privately, about what the goals should be for his new administration, it’s obvious to all that addressing the precarious state of America’s economy has to be priority #1. (Yes, even over puppy selection.) The President-elect made that clear himself in his radio address yesterday, stating “I want to ensure that we hit the ground running on Jan. 20, because we don’t have a moment to lose.” Actually, maybe not even that: waiting all the way until next January 20 increasingly seems some sort of quaint constitutional anachronism in the face of what seems to be the accelerating decline in the American economy.

(As in, for example, Paul Krugman here: “Any way we can get current management at Treasury to take early retirement, and get the new guys in right away?” But remember that, until Franklin Delano Roosevelt’s second term in office, American presidents were in fact inaugurated on March 4 of the year following that in which they were elected. That four-month delay proved to be very dangerous a couple of times, most notably in 1861, when seven Southern states had seceded from the Union before Abraham Lincoln could take office, and in 1933, when FDR ascended to the presidency following a series of catastrophic bank-runs.)

For one thing, if they wait until next January 20 to do anything, General Motors may already be gone. That at least is the message from Jens Nymark in Denmark’s business newspaper Børsen: General Motors can be finished this year.

That headline itself is a stark message, with very serious implications, and I wonder why I haven’t seen things put as bluntly and as prominently as this in the American media. (Instead we have, for example from the Wall Street Journal, Will Obama Bail Out GM, Chrysler and Ford?) Maybe there just hasn’t yet been the time: according to Nymark, it was only on Friday (7 Nov.) that GM management let it be known that they don’t know how they can see out the year without financial assistance. The company’s available capital shrunk to $16.2 billion at the end of September, from $21 billion at the end of June. (Granted, on a straight-line basis that trend would exhaust GM’s capital sometime in the middle of next year.) “It’s clear that things have gotten worse faster than people expected” for the automaker, he quotes Jill Fields from Babson Capital Management as saying. And so far this year the GM share-price is down by 82.5%, to around $4.36.

All of this is not to say that extending a financial bail-out to GM or any other of the US auto-makers is a good idea. It’s quite possible that they are industries producing products of the last century, not this one – at least in their internal-combustion-engine varieties. In any event, a momentous decision is due sooner than we might think about whether to help them – and if not, then how to deal with the considerable economic dislocation resulting from their bankruptcy. It’s a decision that will require considerable political legitimacy backing it up, something that the Bush administration, certainly, and even the present lame-duck Congress lack. Forget March 4: even January 20 is looking more and more like some sort of dangerously-outmoded tradition.

UPDATE: James Howard Kunstler maintains anyway that “[m]any Americans have already bought their last car – they just don’t [know] it yet.”

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