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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (36532)	7/21/2005 8:01:20 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 110194

so if GM goes bankrupt you expect widespread deflation. sounds like you're grasping at straws, but whatever. personally, i think it's good to get rid of the zombies--it restores the supply/demand equilibrium and pricing power to survivors, which is decidedly not deflationary. (notice that Japan has plenty of zombies who have avoided BK ax, but that has been deflationary.) but i don't think the auto sector has the degree of extreme structural overcapacity one saw in the telcos. a lot of the problem as you know is not overcapitalization per se, but the extremely high compensation packages to unionized workers (and worse, their retired brethren, who don't even care about going concern/existing jobs as long as they keep their benefits) which handcuff GM and Ford. simply doing a workout isn't going to bring that capacity back online, as in the case of telco workouts. instead, the jobs simply go bye-bye and the factories get mothballed and turned into outlet malls. furthermore, GM is in the situation where they are forced to build more units even with high inventories, because they must pay their union workers regardless of whether they are working. that is irrational from a supply/demand perspective, but simply reflects the exigencies of their union contracts. a nice healthy BK would wipe out a whole lot of supply, which would be great for the surviving auto makers, AND inflationary for car prices. even the lying CPI would show a decent bump up.