I have read many post with people opposed to any government bail out. I hope you all are ready for the fall out that follows a collapse of the auto industry in this country.
First: I want to state that the proposed assistance is not free money to the companies with us, the tax payers, footing the bill. It is a loan, to be paid back at an interst rate of 5% in the first 5 years and 9% thare after.
That being said, here is what’s ahead if GM does go under and what you need to do to prepare for you own financial future.
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Ford and Chrysler will soon follow and become insolvent within 9 months of GM going chapter 11. Causing the imedate loss of 500,000+ jobs. Loss of health benefits to those employees and 1.5 million retirees. Unemployment will be around 8-10% and medacare and medacaid claims and costs will about double, puting a greater burden on the tax payer to fund these programs.
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With in a year hundreds (if not thousands) of suppliers, dealers and supporting businesses will fail. Costing another 1.5 to 2 million jobs. Get ready to see as much as 15% within that year. Increasing again the burden of those lost job passed on to all of us. Many forien auto makers are also dependant on these same suppliers. Toyota, Honda and Nissan for example. Their ability to get timely, quality parts will suffer and their profitability and quality will suffer as well.
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Kiss any manufacturing base in this country good-bye. Our economy will become almost totally service based. Weaking our infrastructure as a godo producing nation. Our trade deficit will double and we will become almost wholy dependant on other nations for all of our goods. This has enormus implications for national security. When (not if) another major war takes place we will be at the mercy of those countries making our goods for us, ie; China and India. Those ignorant to history, look up the roll GM and Ford played in allowing us to win WWII.
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Credit default by those companies into the current fragile credit markets, Expounding the current creredit crunch. More lenders and creditors will take a hit forcing more job cuts and possibly more chapter 11 in the financial industry as a direct result. More banks and lenders will go insolvant. Again, more people in this country with out jobs. Credit will become even more scarse and more expensive for those few who can get it. This will bleed over to the housing market as well, causing more defaults and pushing the housing market down further. This leaves the Fed with one option to try to stop the bleeding, that would be to print more $$. And I’m pretty sure most of you understand what that does. That’s right, inflation.
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More bad news and more fuel to the downward spiral on wall street. Another 35-45% fall in all major market indices. Get ready for a Dow between 5000 and 4000 and a slashing of dividens for many publicly owned companies here and abroad. This means your 401k.
Well WTF does all this mean to me? Why should I care, you ask?
If not you, someone close to you will lose their job because of it. Maybe not directly, but the ripple effect will cost millions of jobs accrost almost every industry, not just the auto industry.
Your investemnts will see another large decline. Your IRAs, 401ks, brokerage, etc. So if you are buying or holding stocks or mutual funds hoping for a rebound, punt and sell everyting to cash or lose your a$$. So while inflation is going up at 5, 6 or 7% or more, you will lose any ability to try to reatain your purchasing power through interest bearing investments. Your $400k in 2013 will only buy you what $300k will today.
The recession will deepen and possibly sink into a depression, our economy will experience negative growth of ~5%/year, job losses will compound and life will become alot harder for many people. Taxes will go up to fund all the social programs burdened to help all the people out of work and with no health care. Many people who wish to retire simply can’t afford to yet they will struggle to find gainful employment.
The USA will lose more of its economic and military power to emerging countries that are continuing to grow their economies and manufacturing base. Russia, China, India will gain more strength in the world as economic, polotical and military powers.
So F#@& GM, let them fail. They screwed up so they can own it. Probem is that its not just GM that will fail. Our whole nation will sharply feel the ripple effect. As will every single one of its citizens. That’s you too. It will certainly cost more a year down the road if something isn’t done to help maintian the viability of the auto industry in this country. The cost is such that so many people fail to realize the enormus impact that this will have on the entire nation.
It would be the perfect storm in this already fragile economy that would cause a major econic $h!t storm in this country that I don’t think anyone is ready for.