Monday, May 25, 2009

The Former Middle Class and GM

And now, for our regular installment of James Howard Kunstler (for some reason, this feels like Andy Rooney):

Something like a week remains before General Motors is reduced to lunch
meat on industrial-capital's All-You-Can-Eat buffet spread. The wish is that its
deconstructed pieces will re-organize into a "lean, mean machine" for producing
"cars that Americans want to buy," and that, by extension, the American Dream of
a Happy Motoring economy may be extended a while

This fantasy rests on some assumptions that just don't "pencil out." One is
that the broad American car-owning public can continue to buy their cars the
usual way, on credit. The biggest emerging new class in America is the "former
middle class." Credit kept the remnants of the middle class going for decades
after their incomes stopped growing in the 1970s. Now, their incomes have
stopped coming in altogether and they are sinking into swamp of entropy already
occupied by the tattoo-for-lunch-bunch. Of course, this has plenty of dire
sociopolitical implications.

Unfortunately, the big American banks did their biggest volume business in
their biggest loans at the very time that that the middle class was on its way
to becoming former. Now that the former middle class is arriving at its
destination, the banks are so damaged by bad paper that they won't make loans to
even the remnant of the remnant of the middle class. In other words, the entire
model for financing Happy Motoring is now out-of-order, probably

You can read the rest here (scroll down a little on his website to his weekly essay).

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