Friday, November 21, 2008

U.S. Aircraft Manufacturers Declare Bankruptcy


U.S. Congress ... this one's for you.

  • Suppose the economy goes into a protracted tailspin [good metaphor for this]
  • Then suppose U.S. airlines decide to consolidate and not purchase new planes
  • Then suppose our new president is successful at disengaging our military from the Middle East and keeping it out of any other conflicts.
  • Then suppose the new Congress [you] decides that the military budget is better spent on developing hydrogen gas facilities in New Mexico and North Dakota [something like that was proposed the other day in the Senate/House hearings on aid to automobile manufacturers]
  • Then suppose other nations' state-sponsored aircraft manufacturers decide that they will eliminate taxes imposed on their manufacturers and provide manufacturing subsidies for materials and labor expenses in order to give their manufacturers a worldwide competitive advantage
  • Then suppose the U.S. aircraft manufacturers are in a cash deficit position and they can't get financing due to the poor economy and the collapse of their markets
  • Then suppose they come to Congress [you] and say that they will have to liquidate if they don't get help.
What do you suppose the response from Congress [you] would be? Why?
  • Which of you will ask to let the free market work knowing full well that the domestic airlines can buy their planes from Britain or France or Russia or China instead of U.S. manufacturers?
  • Which of you will say that it doesn't matter if the U.S. military has to buy its planes and logistical support for the aircraft from those countries? ...the same ones who say those things about U.S. automobile manufacturers?

    The Boeing Company and Lockheed Martin have teamed to perform studies and system development efforts including collaborative research and development in pursuit of the anticipated U.S. Air Force 2018 Bomber program

  • Is there an inherent difference between two high-tech, massive industries that have both civilian and military application... and cannot be replaced domestically?
Our economists and government officials have shown themselves to be anything but prescient about the economy. Why do you think they are making more sense now with regard to the impact of not helping U.S. automobile manufacturers?
  • Pelosi: "We're talking about the need for accountability, the need for viability" not the source of money to help automakers.
  • Reid says automakers must develop bailout proposal that can pass congressional muster during week of December 8. [source]
In other words... read our minds and tell us what we are thinking... if we are thinking.

Well, how is this for a viability plan:
  • Congress takes action against Asian countries who have been manipulating their currencies for decades by adding import tariffs and penalties equal to the imputed undervalued amount of the imports plus the avoided taxes on the imputed undervalued amount and uses that money to assist its U.S. manufacturers
  • Congress restricts the U.S. marketplace share for all Asian countries that have actively restricted their markets... equal to the market share achieved by all foreign brands in each of those markets; for example, if foreign brands equal 10% of the restricted Japanese market, then limit the Japanese imports (value of complete vehicles and components) to 10% of the U.S. market. *
  • Congress assumes all health care costs for U.S. manufacturers employees as Asian nations do for their automobile manufacturers [that's part of the next administration's agenda anyway]
  • Congress assumes all unemployment costs for the employees temporarily or permanently laid off by the U.S. manufacturers
  • Congress directs all banks to stop hoarding their own bailout money and begin normal commercial lending immediately


  • Congress recognizes that its own failure to enforce treaties and police currency manipulation has contributed greatly to the plight of the U.S. manufacturers... and does the right thing... recognizing that the U.S. companies and the UAW have taken enormous strides to be competitive players in a rigged game... and that our high-tech, heavy industry is vital to the national interests.
That's a plan for viability. Okay, I was being a little facetious... a little. But if Congress is looking for the reasons a plan is needed, start with a mirror.
And, no, the aircraft manufacturers have not declared bankruptcy... yet.
See, we don't need no stupid American aircraft manufacturers.
The Russians will trade us military aircraft for our American-built, high-definition, flat-screen televisions (oops).
What restrictions? Sure we can buy from Japan... and now Korea... and China? Isn't that the viable plan that Congress has been working on for two decades?
3. H.CON.RES.78 : Urging the reduction of barriers to Americans trading with or investing in Japanese companies.
Sponsor: Rep Sundquist, Don [TN-7] (introduced 2/27/1991) Cosponsors (None)
Committees: House Ways and Means
Latest Major Action: 4/5/1991 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.

5. H.RES.133 : To express the sense of the House of Representatives regarding agreements between the United States and Japan with respect to trade in semiconductors.
Sponsor: Rep Mineta, Norman Y. [CA-13] (introduced 4/24/1991) Cosponsors (46)
Committees: House Ways and Means
Latest Major Action: 5/1/1991 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.

8. H.RES.331 : Expressing the sense of the House of Representatives regarding the opening of Japanese markets, and for other purposes.
Sponsor: Rep Bruce, Terry L. [IL-19] (introduced 1/28/1992) Cosponsors (15)
Committees: House Ways and Means
Latest Major Action: 2/4/1992 Referred to House subcommittee. Status: Referred to the Subcommittee on Trade.

Sales of imported vehicles by all foreign car makers totaled 14,406 in August [2007] [about 168,000 annually], down from 15,249 in the same month last year. Among the top three foreign brands by sales volume, Volkswagen saw sales drop by 1.5 percent on the year and BMW sales fell 21.3 percent. Mercedes Benz saw an increase of 3.3 percent. [Note: Japan's population is approximately 42% of the U.S.]

Toyota and Honda
, excluding other Japanese brands, sold over 240,000 vehicles... in the month of September, 2008.

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
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- O. Henry
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Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)