Thursday, November 20, 2008

Critical views on the US Auto Industry Bailout

WSJ asks and answers some important questions :
Will fewer companies look to insource into America if the federal government is willing to bail out their domestic competitors?

The answer :

The answer is an obvious yes. Ironically, proponents of a bailout say saving Detroit is necessary to protect the U.S. manufacturing base. But too many such bailouts could erode the number of manufacturers willing to invest here....

Will a U.S.-government bailout go ignored by policy makers abroad?

The answer :

No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. And that would reduce these companies' U.S. employment, R&D and related activities. That would be bad for America.....

Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets?

The answer :

Not likely. Instead, America runs the risk of creating the kind of "political-risk premium" that investors have long placed on other countries -- and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar.

Reduced foreign demand for U.S. assets would be troubling at any time. Its prospect is especially troubling now, when the federal government's fiscal 2009 deficit is widely forecast to reach something near or exceeding $1 trillion -- up from $456 billion last year. With net saving still near zero for U.S. households and falling profits for U.S. companies, financing that deficit will require attracting foreign capital.

1 comment:

  1. Interesting Read! Very detailed blog,thanks for sharing