What's so grim about it? As a consumer, I see a photo tour of an impending wave of massive discounts.
I agree that it may be taken as evidence of malinvestment in the past, but you know what they say about spilled milk. Let the chips fall where they may. I guarantee they won't stay scattered on the casino floor.
From the Federal Reserve’s “flow of funds” report, we can see that Total System Credit (non-financial and financial) ended 1995 at $18.475 TN. By the end of 2007, this number had inflated to $49.882 TN, for growth of 170% in only 12 years. During this period, Household Debt swelled 184% to $8.959 TN; Non-farm Corporate Debt 130% to $3.832 TN; and State & Local Government borrowings 109% to $2.192 TN. Federal debt expanded “only” 41% to $5.122 TN. Rest of World holdings of U.S. assets inflated 365% to $16.048 TN. While significantly trailing Credit growth, GDP nonetheless bulged 87% during this period.
Over the past decade, the “optimists” often cited the federal government’s positive fiscal position as evidence of the health of the overall economy and soundness of our prosperity. It should be clear these days that the protracted boom's massive inflation of private-sector Credit had grossly inflated government receipts (among other things). Indeed, over the 12-year period Federal Receipts inflated 88% (to $2.651 TN) and State & Local receipts increased 92% (to $1.903bn). This crucial facet of the inflationary boom spurred federal and state & local spending growth of 80% and 93%, respectively.
State & Local governments will now attempt to maintain these inflated levels of expenditures, while the federal government will move aggressively to grossly inflate already inflated spending. The budget now calls for federal expenditures this year to approach $4.0 TN. This compares to spending of about $1.6 TN back in 1995. The federal deficit is projected to expand by a combined $3.0 TN during fiscal years ’09 and ’10. This would amount to a 60% increase in federal debt in only two years.
Today’s unparalleled expansion of federal debt and obligations is being dressed up as textbook “Keynesian.” It’s rather obvious that we are in dire need of some new books, curriculum and economic doctrine. But from a political perspective, the title is appropriate enough. From an analytical framework perspective such policymaking is more accurately labeled “inflationism” – a desperate attempt to prop inflated asset prices, incomes, business revenues, government receipts, and economic “output”. There have been many comparable sordid episodes throughout history, and I am not aware of any positive outcomes.
I have been reading Noland for the last 7 years, and more than any other financial analyst, he has forcast the present predicament, and with the proper analysis of the various facets of the problem.
While I think these pictures are interesting and perhaps illustrative of the automakers' inventory issues, it would be nice to have some idea of scale, capacity, etc. to really get a complete picture of the situation.
If the automakers weren't waiting for more free money from the gummint, they would already be discounting the cars even more. Intervention in the form of low interest rates gave us this, now intervention in the form of direct subsidies will perpetuate it.
... so, I take it that in non-recession times consumer line up outside the assembly plants and immediately take possession of the vehicles when they roll off the line?
That's very different from my recent car buying experience.
Staash has it. What did these lots look like 2, 3, 5 years ago?
Also, the caption "With many manufacturers on extended Christmas shutdown, the number of cars rolling off production lines in December fell 47.5% to just 53,823" seems to imply a normal monthly production of ~100,000. I'm fairly certain that world production of cars exceeds 1.2M per year, so perhaps the sample is limited.
I don’t know if I buy this. Every time I drive down 95 from NY to DC, there are massive lots at the docks that are filled with cars. I'm with Klug et al who have noted the capacity of these lots; what else would these huge lots fill their space with?
The Upper Heyford airbase is troubling and the Nissan racetrack might be a little disconcerting depending on when that picture was taken.
In years past, you could tell the health of the lumber industry by the number of bundles stacked in the yards. There was always some, shipments ready to go, but when sales were slow, the inventory stacked up.
The mills that are still running have very large stacks right now.
There are always cars in inventory of course. Any given day in a shipping yard there would be vehicles. What about the next day? What about the day after the train loaded up, or the day before a shipment arrived.
I don't doubt that there are larger inventories of unsold vehicles on hand right now than there were in, say, 2005.
The problem is that the photographs are totally devoid of context. When was the photograph taken? How does this photograph compare to previous years when shipping cycles are taken into account?
I don't mean to take Megan to task on this. It's a neat link, and I think it was intended as such. However, it's also superficial, arbitrary, and potentially misleading when written under the title a "grim world tour".
A fair amount of Megan's writing needs to be taken on faith by readers with a thirsty but limited knowledge of economics. Posts like this undermine her credibility for those not intimately acquainted with her (occasionally indecipherable) style.
This is yet another example of governments not letting markets do what they're supposed to do. Like when "liquidity" gets tight, they don't let interest rates go up, and when business models fail, they don't let the relevant prices fall. Here, with a massive oversupply of cars, prices need to fall to clear markets, but it obviously isn't happening anything close to what needs to happen, and I'm sure all the expected aid to automakers has something to do with it.
For those of you expecting a precipitous fall in car prices, don't hold you're breath. They've been a little lower, but government will always be there to keep its finger on the scale.
I think this is obvious anecdotal evidence provided by Megan. Slow down. I don't think this undermines her credibility in the least. I would rather follow her economic forecasts and/or advice than say Paul "nobel prize winner" Krugman. Didn't he win for trade and not really macro economics? But hey, he is the poster boy for left leaning economics (spend without caring) -- the kind where we redistribute wealth to people who drop out of HS school and claim they are disabled to collect a government check... Glad I get to pay into a system that takes care of quality Americans like these... because, hey, they deserve the flat screen TV, top of the line cell phone plan and new car just like me... the one with a college education (self-paid) and working for a living.
It's the Obama way... no work, no problem. The government will take care of you. And if you, Staash, require hard evidence, come on down to NC and I'll give you plenty of examples of the bullshit this Obama bill covers.
We need more than a damn tea party, we need people in government that have actually worked in the private sector, not ivy league universities where their T.A.s do all the teaching.
With Mr. Obama pouring $50B per quarter into the auto industry, why should there be production cuts? After all, we need to maintain full employment. In order to keep prices up, the government can just buy up the excess for a dollar per vehicle and ship it to Bangladesh along with our agricultural surplus. Of course we'll need to subsidize driver's training over there to maintain the market. I'll get Rangle and Dodd on it right away.
Those saying that production cuts have not occured because of the auto bailouts are wrong. The Motor Vehicle Production index has slumped from 76.5 to 36.5 since last September (http://www.federalreserve.gov/releases/g17/Current/table1_sup.txt), in other words production has been more than cut in half in just 4 months.
It is clear now that the problems do not originate in the auto industry, or in any particular companies within the industry (all companies around the world are getting hit equally hard). It is a system wide breakdown that shows how fragile the celebrated globalized economy really was.
One of the reasons the storage lots are so full is that the dealers' lots are not so full. That may not constitute "the rats deserting the sinking ship", but the dealers are certainly hedging their bets.
I have been doing some desultory car shopping on the internet, as well as some shopping by walking around dealer lots. I have encountered two interesting situations on the internet.
First, several of the manufacturers websites seem to be having difficulties with their "Build your own" functions, which open to blank pages. This suggests to me that they are far more interested in clearing inventory than building vehicles to order.
Second, the "Find your vehicle" functions on several manufacturers' sites return "0 vehicles matched your search" results. This confirms that the dealers are controlling inventories; or, that their lenders are doing so for them.
None of my searches have been for vehicle brands identified as being considered for sale or extinction (Dodge cars, Pontiac, Hummer, Saturn, Saab, Volvo, Jaguar, etc.)
The other phenomenon obvious while walking dealer lots is that many have large displays of "previously owned" vehicles of all makes close to the showroom, while their manufacturer's vehicles are in a lot some distance from the showroom. It is almost as if, despite the large lettering on the front of the showroom, the dealers were trying to distance themselves from the manufacturer they represent. This might well be in anticipation of broad scale dealer terminations in the event of a manufacturer bankruptcy.
Re: we need people in government that have actually worked in the private sector
Gee I wonder if Vikram Pandit (Citibank CEO) is available to take over?
For that matter didn't George W Bush originally work in the private sector where he drove his business into the ground?
Dee LOL LOL you chastise Staash for jumping the gun and hyperbolizing then at once do the same thing! Classic. The one thing I like about this board is that people seem to be above fostering and furthering memes based solely on their feeling. I guess that has ended.
Btw I'm going donuts to dollars that in the next 6 months your CIRCLE will include one of these persons who are taking handouts from the govt. Of course since you will KNOW this person they won't fit you or Rick Santelli's conveniently created narrative of the person who bought 20 flat screens, a hummer, a private flight to Gstaad, a house in the hamptons and a 2nd larger hummer to pull their smaller hummer around.
There seems to be a fairly decent sell-off going down in the Asian markets. If this doesn't bleed through to the U.S. indexes, consider it a warning. If we do catch the contagion, don't say I didn't warn you.
As a sailor, I know first hand that bail-outs don't work when the flooding exceeds pump capacity. It is looking increasingly like that is the situation we are finding ourselves in.
Gold may not go much higher, but it's made me a nice profit so far and it sure is giving me peace of mind right now.
Click the link above to hear Megan's embarrassing interview with Dean Baker. Read those comments too. Here is one of mine:
My thesis predicts that Megan in actually the smartest person in this room:
Her message is but a small part of the linguistic massif that has risen up under the tectonic twin-pressures of marketing and advertising that has change America, forever, into Thinktankistan.
Education leads with the shining light of an expanding awareness. The think-tank, marketing model "educates us," and then retreats with a hiss, to then hide in the shadows until "further instruction" becomes possible, that is, when we are again, brutishly unawares.
Megan has plenty of company. When we all begin to question the truism that we repeat over and over, again, each of us can find think-tank spawn within our own minds, that was put there at the cost of tens of billions of dollars.
If survival is the highest value, then Megan is 'greater than I." I suffer in Thinktankistan. Megan flourishes. The incessant, think-tank ejecta, to me, is a rain of sulfur...a cloud of asbestos, that I can't escape.
For Megan, their message invites her to a shiny, new day, after yesterday, which too, was a shiny, new day.
She lives. I die. I guess that I'm the stupid one.
*******************
Here is my other one:
A libertarian analyzes the world based on reason, not emotion. But, before anyone say that that is a good thing, imagine the emotion-less activity of BTK, the serial killer. Reason, without emotion, is sociopathology, verging on psychopathology (ie, BTK and Ayn Rand, and the "person" of The Corporation).
In the interview, do Megan's sentences and arguments sound disjointed, similar to output from an AI prototype? That is because only emotion allows us to humanely organize our language output, something AI machines cannot yet do. Through emotion, we can poetically organize our thoughts by properly feeling where each word should go, and which argument should follow next,..we are efficiently measuring each and every meaning, putting everything in its proper place. Megan, apparently, is emotionally compromised, to put it mildly.
So, the WPA built many good things, but also extended the lives of many people who, otherwise, would have died. This latter point, Amity Schlaes, nor Megan McArdle, would understand, because they are just dusted off, articulate and salaried sociopaths, or psychopaths, not surprisingly, similar to the modern day corporation.
Stanley writes: "In the interview, do Megan's sentences and arguments sound disjointed, similar to output from an AI prototype? That is because only emotion allows us to humanely organize our language output, something AI machines cannot yet do."
Here's a little exercise for you: read Megan's "Jane Galt" posts circa 2001-2002. Then, please, tell me if she sounds like "an AI prototype" in her chronicling of the aftermath of a disgusting terrorist attack on the thing she loves the most.
The other phenomenon obvious while walking dealer lots is that many have large displays of "previously owned" vehicles of all makes close to the showroom, while their manufacturer's vehicles are in a lot some distance from the showroom. It is almost as if, despite the large lettering on the front of the showroom, the dealers were trying to distance themselves from the manufacturer they represent.
I think that explanation might stretch things just a bit.
People are heavily buying used vehicles in lieu of new right now, in spite of new vehicle incentives and discounts. Call it thrift, call it an inability to get lavish financing, call it whatever. It's more probable that the dealers are simply placing the profitable inventory closer to the showroom. Moving new inventory to the outer lots would be a rather lousy way of dissociating yourself from the brand when said brand is plastered on a tall sign next to the street.
All the libertarians claiming that the problems can be solved by just cutting prices enough.
The obvious dangers of knowing a little economics.
They may teach that price can be lowered to get rid of surpluses in libertarian economics classes, but the real world is more complicated than that.
Are any of you advocating just cutting prices able to demonstrate that this is the optimal loss minimization strategy for the car companies?
Cutting prices is the correct lose minimization strategy under certain but not all conditions.
Can any of using your simple cut prices strategy able to demonstrate that it is the best loss minimization strategy under current conditions?
What's so grim about it? As a consumer, I see a photo tour of an impending wave of massive discounts.
I agree that it may be taken as evidence of malinvestment in the past, but you know what they say about spilled milk. Let the chips fall where they may. I guarantee they won't stay scattered on the casino floor.
What's so grim about it? As a consumer, I see [...] an impending wave of massive discounts.
That's how I view the housing market.
Well said, Nelson.
The seen and the unseen.
Unfortunately, economic logic is applied selectively depending on the good and the sector in question.
Maybe the government should buy up those cars so the used car market doesn't suffer a drop in prices. hehehehe
Impending?
Last fall, september or so, I was looking for a small pickup. Ford Ranger, or the small Toyota. Both were around $21,000. Canadian.
Thursday a Ford Ranger, 2009, $13,000.
Derek
A Week of Big Numbers by Doug Noland:
I have been reading Noland for the last 7 years, and more than any other financial analyst, he has forcast the present predicament, and with the proper analysis of the various facets of the problem.
While I think these pictures are interesting and perhaps illustrative of the automakers' inventory issues, it would be nice to have some idea of scale, capacity, etc. to really get a complete picture of the situation.
If the automakers weren't waiting for more free money from the gummint, they would already be discounting the cars even more. Intervention in the form of low interest rates gave us this, now intervention in the form of direct subsidies will perpetuate it.
... so, I take it that in non-recession times consumer line up outside the assembly plants and immediately take possession of the vehicles when they roll off the line?
That's very different from my recent car buying experience.
Staash has it. What did these lots look like 2, 3, 5 years ago?
Also, the caption "With many manufacturers on extended Christmas shutdown, the number of cars rolling off production lines in December fell 47.5% to just 53,823" seems to imply a normal monthly production of ~100,000. I'm fairly certain that world production of cars exceeds 1.2M per year, so perhaps the sample is limited.
I've seen that photo set before, BTW.
I don’t know if I buy this. Every time I drive down 95 from NY to DC, there are massive lots at the docks that are filled with cars. I'm with Klug et al who have noted the capacity of these lots; what else would these huge lots fill their space with?
The Upper Heyford airbase is troubling and the Nissan racetrack might be a little disconcerting depending on when that picture was taken.
But this might become a reality: http://www.marinelog.com/DOCS/NEWSMMIX/2009feb00250.html
Toyota has rented a ship to house 2500 overflow inventory.
In years past, you could tell the health of the lumber industry by the number of bundles stacked in the yards. There was always some, shipments ready to go, but when sales were slow, the inventory stacked up.
The mills that are still running have very large stacks right now.
There are always cars in inventory of course. Any given day in a shipping yard there would be vehicles. What about the next day? What about the day after the train loaded up, or the day before a shipment arrived.
Derek
I don't doubt that there are larger inventories of unsold vehicles on hand right now than there were in, say, 2005.
The problem is that the photographs are totally devoid of context. When was the photograph taken? How does this photograph compare to previous years when shipping cycles are taken into account?
I don't mean to take Megan to task on this. It's a neat link, and I think it was intended as such. However, it's also superficial, arbitrary, and potentially misleading when written under the title a "grim world tour".
A fair amount of Megan's writing needs to be taken on faith by readers with a thirsty but limited knowledge of economics. Posts like this undermine her credibility for those not intimately acquainted with her (occasionally indecipherable) style.
This is yet another example of governments not letting markets do what they're supposed to do. Like when "liquidity" gets tight, they don't let interest rates go up, and when business models fail, they don't let the relevant prices fall. Here, with a massive oversupply of cars, prices need to fall to clear markets, but it obviously isn't happening anything close to what needs to happen, and I'm sure all the expected aid to automakers has something to do with it.
For those of you expecting a precipitous fall in car prices, don't hold you're breath. They've been a little lower, but government will always be there to keep its finger on the scale.
Staash,
I think this is obvious anecdotal evidence provided by Megan. Slow down. I don't think this undermines her credibility in the least. I would rather follow her economic forecasts and/or advice than say Paul "nobel prize winner" Krugman. Didn't he win for trade and not really macro economics? But hey, he is the poster boy for left leaning economics (spend without caring) -- the kind where we redistribute wealth to people who drop out of HS school and claim they are disabled to collect a government check... Glad I get to pay into a system that takes care of quality Americans like these... because, hey, they deserve the flat screen TV, top of the line cell phone plan and new car just like me... the one with a college education (self-paid) and working for a living.
It's the Obama way... no work, no problem. The government will take care of you. And if you, Staash, require hard evidence, come on down to NC and I'll give you plenty of examples of the bullshit this Obama bill covers.
We need more than a damn tea party, we need people in government that have actually worked in the private sector, not ivy league universities where their T.A.s do all the teaching.
With Mr. Obama pouring $50B per quarter into the auto industry, why should there be production cuts? After all, we need to maintain full employment. In order to keep prices up, the government can just buy up the excess for a dollar per vehicle and ship it to Bangladesh along with our agricultural surplus. Of course we'll need to subsidize driver's training over there to maintain the market. I'll get Rangle and Dodd on it right away.
I'm with Staash: The photos should be given context.
Those saying that production cuts have not occured because of the auto bailouts are wrong. The Motor Vehicle Production index has slumped from 76.5 to 36.5 since last September (http://www.federalreserve.gov/releases/g17/Current/table1_sup.txt), in other words production has been more than cut in half in just 4 months.
It is clear now that the problems do not originate in the auto industry, or in any particular companies within the industry (all companies around the world are getting hit equally hard). It is a system wide breakdown that shows how fragile the celebrated globalized economy really was.
By the way, the index uses (2002=100), so production is down nearly two thirds since 2002. And the non seasonally adjusted numbers look even worse.
One of the reasons the storage lots are so full is that the dealers' lots are not so full. That may not constitute "the rats deserting the sinking ship", but the dealers are certainly hedging their bets.
I have been doing some desultory car shopping on the internet, as well as some shopping by walking around dealer lots. I have encountered two interesting situations on the internet.
First, several of the manufacturers websites seem to be having difficulties with their "Build your own" functions, which open to blank pages. This suggests to me that they are far more interested in clearing inventory than building vehicles to order.
Second, the "Find your vehicle" functions on several manufacturers' sites return "0 vehicles matched your search" results. This confirms that the dealers are controlling inventories; or, that their lenders are doing so for them.
None of my searches have been for vehicle brands identified as being considered for sale or extinction (Dodge cars, Pontiac, Hummer, Saturn, Saab, Volvo, Jaguar, etc.)
The other phenomenon obvious while walking dealer lots is that many have large displays of "previously owned" vehicles of all makes close to the showroom, while their manufacturer's vehicles are in a lot some distance from the showroom. It is almost as if, despite the large lettering on the front of the showroom, the dealers were trying to distance themselves from the manufacturer they represent. This might well be in anticipation of broad scale dealer terminations in the event of a manufacturer bankruptcy.
Re: we need people in government that have actually worked in the private sector
Gee I wonder if Vikram Pandit (Citibank CEO) is available to take over?
For that matter didn't George W Bush originally work in the private sector where he drove his business into the ground?
This is silly. Find the market clearing price tomorrow and get on with it. (hint it's not 22K for a new explorer)
k1
ryanculver.blogspot.com
Dee LOL LOL you chastise Staash for jumping the gun and hyperbolizing then at once do the same thing! Classic. The one thing I like about this board is that people seem to be above fostering and furthering memes based solely on their feeling. I guess that has ended.
Btw I'm going donuts to dollars that in the next 6 months your CIRCLE will include one of these persons who are taking handouts from the govt. Of course since you will KNOW this person they won't fit you or Rick Santelli's conveniently created narrative of the person who bought 20 flat screens, a hummer, a private flight to Gstaad, a house in the hamptons and a 2nd larger hummer to pull their smaller hummer around.
k1
ryanculver.blogspot.com
There seems to be a fairly decent sell-off going down in the Asian markets. If this doesn't bleed through to the U.S. indexes, consider it a warning. If we do catch the contagion, don't say I didn't warn you.
As a sailor, I know first hand that bail-outs don't work when the flooding exceeds pump capacity. It is looking increasingly like that is the situation we are finding ourselves in.
Gold may not go much higher, but it's made me a nice profit so far and it sure is giving me peace of mind right now.
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=02&year=2009&base_name=post_2
Click the link above to hear Megan's embarrassing interview with Dean Baker. Read those comments too. Here is one of mine:
My thesis predicts that Megan in actually the smartest person in this room:
Her message is but a small part of the linguistic massif that has risen up under the tectonic twin-pressures of marketing and advertising that has change America, forever, into Thinktankistan.
Education leads with the shining light of an expanding awareness. The think-tank, marketing model "educates us," and then retreats with a hiss, to then hide in the shadows until "further instruction" becomes possible, that is, when we are again, brutishly unawares.
Megan has plenty of company. When we all begin to question the truism that we repeat over and over, again, each of us can find think-tank spawn within our own minds, that was put there at the cost of tens of billions of dollars.
If survival is the highest value, then Megan is 'greater than I." I suffer in Thinktankistan. Megan flourishes. The incessant, think-tank ejecta, to me, is a rain of sulfur...a cloud of asbestos, that I can't escape.
For Megan, their message invites her to a shiny, new day, after yesterday, which too, was a shiny, new day.
She lives. I die. I guess that I'm the stupid one.
*******************
Here is my other one:
A libertarian analyzes the world based on reason, not emotion. But, before anyone say that that is a good thing, imagine the emotion-less activity of BTK, the serial killer. Reason, without emotion, is sociopathology, verging on psychopathology (ie, BTK and Ayn Rand, and the "person" of The Corporation).
In the interview, do Megan's sentences and arguments sound disjointed, similar to output from an AI prototype? That is because only emotion allows us to humanely organize our language output, something AI machines cannot yet do. Through emotion, we can poetically organize our thoughts by properly feeling where each word should go, and which argument should follow next,..we are efficiently measuring each and every meaning, putting everything in its proper place. Megan, apparently, is emotionally compromised, to put it mildly.
So, the WPA built many good things, but also extended the lives of many people who, otherwise, would have died. This latter point, Amity Schlaes, nor Megan McArdle, would understand, because they are just dusted off, articulate and salaried sociopaths, or psychopaths, not surprisingly, similar to the modern day corporation.
Stanley writes: "In the interview, do Megan's sentences and arguments sound disjointed, similar to output from an AI prototype? That is because only emotion allows us to humanely organize our language output, something AI machines cannot yet do."
Here's a little exercise for you: read Megan's "Jane Galt" posts circa 2001-2002. Then, please, tell me if she sounds like "an AI prototype" in her chronicling of the aftermath of a disgusting terrorist attack on the thing she loves the most.
Shame I have to share a name with you.
Instead, click:
http://wiki.answers.com/Q/What_does_don%27t_rest_on_your_laurels_mean
...or,..means to continue the efforts to achieve and not rely on recognition for previous achievements.
Only MD's get to do that.
I wrote: "Shame I have to share a name with you."
I take that back. There's nothing shameful about being mentally unstable.
Unless, you are pretending to be something that you are not...?
The other phenomenon obvious while walking dealer lots is that many have large displays of "previously owned" vehicles of all makes close to the showroom, while their manufacturer's vehicles are in a lot some distance from the showroom. It is almost as if, despite the large lettering on the front of the showroom, the dealers were trying to distance themselves from the manufacturer they represent.
I think that explanation might stretch things just a bit.
People are heavily buying used vehicles in lieu of new right now, in spite of new vehicle incentives and discounts. Call it thrift, call it an inability to get lavish financing, call it whatever. It's more probable that the dealers are simply placing the profitable inventory closer to the showroom. Moving new inventory to the outer lots would be a rather lousy way of dissociating yourself from the brand when said brand is plastered on a tall sign next to the street.
Demand for these cars will rebound once enough people are evicted from their foreclosed houses and need a dry place to sleep.
All the libertarians claiming that the problems can be solved by just cutting prices enough.
The obvious dangers of knowing a little economics.
They may teach that price can be lowered to get rid of surpluses in libertarian economics classes, but the real world is more complicated than that.
Are any of you advocating just cutting prices able to demonstrate that this is the optimal loss minimization strategy for the car companies?
Cutting prices is the correct lose minimization strategy under certain but not all conditions.
Can any of using your simple cut prices strategy able to demonstrate that it is the best loss minimization strategy under current conditions?
Are do you even know the difference?