Delphic Oracle
Please excuse the title. As a person with a background in philosophy it's difficult to resist references to classic Greece. However the topic I broach today has nothing to do with the prognostications at the temple of Delphi though I suppose a glimpse into the future might be held here. The Delphi I refer to is the company that declared bankruptcy on Saturday, October 8 2005.
While it made the news in a fairly prominent way, economic news is often ignored by the general public. And I suppose Steve Miller (CEO of Delphi) declaring Chapter 11 once more isn't a huge surprise. He did the same thing at Bethlehem Steel, Morrison-Knudson and Federal-Mogul, after all. Yet Delphi up until 1999 was a large chunk of General Motors--but was spun off presumably to relieve GM of some of their ruinous contract with UAW (Union of Auto Workers). The reason this might be a glimpse into the future is that since 1999 GM's market share has steadily eroded and it's contract with UAW is also quite expensive. Does this mean that GM is thinking of declaring Chapter 11? I don't expect a step that drastic right away but this might be an opening move in a fight with UAW. GM is hemorrhaging billions of dollars and I doubt that'll change anytime soon.
In a somewhat ungainly transition I'll move on to the trade imbalance. I'm continually amused by Washington's frequent statements that they're going to play hardball with the Chinese over their trade surplus with the USA. Since the excess dollars that China earns this way are immediately turned around to buy US treasury notes, which Washington needs to fund deficit spending, don't expect the Trade Department's hardball game to be that serious.
A corollary to this is that if other countries stop buying US Treasury notes, the interest rates will jump, and we'll all be up that proverbial creek. And with no money to buy a paddle. Imagine mortgage rates back over 16%. Fortunately our trading partners like China have limited options for trading the US dollars they receive back into something they can use... but if that changes, look out!
While it made the news in a fairly prominent way, economic news is often ignored by the general public. And I suppose Steve Miller (CEO of Delphi) declaring Chapter 11 once more isn't a huge surprise. He did the same thing at Bethlehem Steel, Morrison-Knudson and Federal-Mogul, after all. Yet Delphi up until 1999 was a large chunk of General Motors--but was spun off presumably to relieve GM of some of their ruinous contract with UAW (Union of Auto Workers). The reason this might be a glimpse into the future is that since 1999 GM's market share has steadily eroded and it's contract with UAW is also quite expensive. Does this mean that GM is thinking of declaring Chapter 11? I don't expect a step that drastic right away but this might be an opening move in a fight with UAW. GM is hemorrhaging billions of dollars and I doubt that'll change anytime soon.
In a somewhat ungainly transition I'll move on to the trade imbalance. I'm continually amused by Washington's frequent statements that they're going to play hardball with the Chinese over their trade surplus with the USA. Since the excess dollars that China earns this way are immediately turned around to buy US treasury notes, which Washington needs to fund deficit spending, don't expect the Trade Department's hardball game to be that serious.
A corollary to this is that if other countries stop buying US Treasury notes, the interest rates will jump, and we'll all be up that proverbial creek. And with no money to buy a paddle. Imagine mortgage rates back over 16%. Fortunately our trading partners like China have limited options for trading the US dollars they receive back into something they can use... but if that changes, look out!
Comments
No particular reason other than GM has been teetering for a while and Delphi just declared Chapter 11 a few days ago. The trade balance issue is on my mind a lot.