In Vox’s most recent Brainstorm with Steve Keen, “Can we avoid another financial crisis?” I asked the following off-topic question:
In the US auto industry we are seeing an extraordinary ramp up in production demand and manufacturing capital investment at the same time as a huge drop in price and demand. What is probably happening?
This question was inspired by a recent conversation with glosoli, who knows a thing or two about financial market patterns. Contra the usual pattern, I was the optimistic capitalist and he was raising the latter point: American consumers simply aren’t buying cars right now. This is alarming because two of Steve Keen’s major points in the Brainstorm were:
1) Credit acceleration cannot continue, therefore it won’t, and
2) “If you had your own bank, and you could go into debt and then buy your own loans with your bank’s currency (and other banks accept this situation) would you worry about your debt? Governments that run banks are in this position.” (paraphrase)
Vox’s response was very grounded and commonsensical: the most likely situation is that corporate interests can get loans right now and consumers can’t. Speaking a bit less off-the-cuff, we can say for certain that corporations are taking out loans and consumers aren’t, for whatever reason.
So putting all these thoughts together, I think what we’re looking at here is a planned crash-and-bailout strategy in the style of The Creature from Jekyll Island. You have to figure that the people making purchasing decisions at Ford, GM, and Chrysler are aware of the low consumer demand, and unless they are egregiously stupid they have learned a couple of lessons from 2008—namely, that economists aren’t as clever as their SATs suggest they should be.
Therefore, I think the executives of these companies know that supply will not drive demand to the extent that it must to justify these capital investments, and we’re looking at an intentional crash. Due to the typical length of car projects (~1 year), I’d presume this situation will become an emergency in about two years when costs drastically fail to recoup.
Anyway, we’ll see, this is not based on intuition (so not my strong suit) and I’m dabbling in fields where I’m not comfortable. Genius has its perks but there are limits too.