NY Times columnist Paul Krugman points out the glaringly obvious in his latest column "The Renimbi Runaround" -- and that is that the Chinese government has been rolling US Treasury Secretaries for a decade with promises of appreciating its currency.  The problem is that the Chinese currency, called the renimbi or yuan, has been undervalued significantly for years now.  That allows the Chinese to steal American factories and jobs. One can date the practice to the competitive Chinese devaluation of January 1, 1994, when China decided to steal manufacturing from other low-cost Asian producers by artificially lowering the price of its currency.  

Since then, the Chinese government has intervened in the currency market (and I use the term market advisedly since the extent of the manipulation renders it meaningless) by printing yuan and buying dollars on a massive scale. This practice, illegal under international law and regulations, accomplishes several goals.  It keeps the price of the yuan cheap and thus makes Chinese exports more competitive than they would otherwise be.  It raise the price of incoming goods in China, making them less competitive.  And it allows the Chinese to accumulate a hoard of dollars, which they lend back to us (in the form of buying our Treasury bonds) so that we can continue to buy their artificially cheap goods, perpetuating the vicious American borrow-and-spend cycle.

The Chinese have been toying with American leaders for years -- in particular with vague promises to allow the yuan to move more freely.  In an episode lasting from 2005 to 2008, the yuan appreciated a nominal 17.5 percent, seeming to provide progress.  But the key word here is nominal.  The growing strength of the Chinese economy and vast increases in productivity made the yuan in real terms even stronger than the staged "float."  So the float was a nominal illusion and the yuan actually became more undervalued.  Now that's progress.

The US government has swallowed, hook, line, and sinker, every Chinese trick and manipulation.  The Chinese announcement last week of a new float -- in a cynical attempt to manipulate and disarm any serious discussion of yuan appreciation at the current G-20 summit -- was meet with school-girl like gushing by President Obama and Treasury Secretary Geithner, in a truly pathetic American performance.

It seems the last three American presidents don't want to "disturb" our important bilateral relationship with China, in which, for example, their client state North Korea launches ICBM missiles over Japan, develops nuclear bombs, sinks a South Korean warship, and threatens all-out war on the Korean peninsula. Right! Who would want to put an end to Chinese cooperation with sterling results like these?

In fact, the Chinese are happy to see the US government bogged down with another security crisis.  It helps take some of our focus off the yuan and other problems, like the rapidly growing strength of the Peoples Liberation Army, and Chinese threats to expel the "US hegemon" from the westerm Pacific.

Back to the free-trader extraodinaire Krugman.  He's finally caught on to the fact that what we have with China, and in fact with the rest of East Asia (and many other countries in the world)is not free trade, but manipulated trade -- only we are not doing the manipulation.  While US leaders blindly push for the implementation of theory through new trade agreements and institutions like the WTO, as a result of our Anglo-Saxon obession with the rule of law, the rest of the world is practicing raw economic power politics and taking us to the cleaners.

The result has been the decimation of our manufacturing base, and with it our R&D base, because the two go hand-in-hand in a reenforcing cycle. That's why manufacturing is responsible for 70 percent of American R&D. One result is a serious decline in our ability to maintain our lead in innovation and technology in the future.

The destruction of manufacturing also has resulted in the loss of millions of high-paying jobs, which used to generate further support jobs, and the closure of thousands of factories.  That's why we are witnessing the end of a middle class life for many of our citizens.  Our tax base has also shrunken dramatically.  Is it any wonder that our states are broke, and several are in worse shape than Greece?

Krugman, ever the paper tiger, apparently wants  to give the Chinese just one more chance to fly right.  If they don't start to cooperate soon -- and since he doesn't set any targets for appreciation, he leaves himself open to manipualtion, then it will be time talk about sanctions.  The Chinese are quaking.

No, Mr. Noble Laurate, the time for talk has long since passed.  The time for either traiffs or a tax on yuan dollar conversions is yesterday. There is a point of no return for American manufacturing -- and in fact the entire American economy.  We are rapidly approaching that point.  Once disassembled, manufacturing plants and teams are not easily reassembled. Lost skill-sets and knowledge bases are gone for good. We can't simply, in the great American tradition, throw money at the problem and reconstitute them.  Further, the "industries of tomorrow," a current Obama administration catch-phrase, are in fact built on the industries of today, not on wishes, hopes, dreams, and political rhetoric.  

The strengthening of our current manufacturing base and building upon it to regain lost industries and plant the seeds for new industries is job one for Congress and the Obama administration.  The only way to do that, given our uncooperative, export-obsessed trading partners, is through tariffs high enough to repatriate lost manufacturing.

Sure there will be pain -- here and around the  world. But we have dug ourselves into a 30-year hole, and we are not going to climb out easily.  All those countries that have stolen our factories and jobs should have had a plan for this day.  After all they excell at industrial planning, including hopefully for the day when the free ride ended. Hint: it's called strengthening domestic demand -- something the US govenrment has preached to them for years, to no avail.  They can't say they weren't warned.

So for all the Paul Krugmans and other paper tigers out there, the day of reckoning has come --and in many ways because of your past failures to deal with reality, it is here too late and thus will be accompanied by more pain.

We have no choice but to implement a tariff regimen -- and many other complementary programs along with it (see the USBIC plan to save American Manufacturing, which has been published on our web site for the last five years). No more talk, no more threats, no more chit-chat diplomacy, no more Johnny-come-lately columns.  Just abandonment of cherished but faulty free-trade theories, and bold action -- or we can kiss our high standard of living and middle class good-bye.
 

It was interesting the note that Robert Reich, the first Clinton Labor Secretary and a prolific writer and speaker on economics, wrote in his blog recently that the answer to the problems caused by globalization, the Great Recession, and the employment crisis is more education for Americans.

Several things struck me: (1) the rest of the world is not standing still in an educational funk while the clever Americans steal a march on them.  China, to use one example, is turning out vastly more engineers and other technically skilled graduates each year than we are. So we have to sprint to stay in place. (2) Reich was a Cabinet officer beginning 16 years ago.  Why did he and the Clinton administration fail to provide the training programs and the education Americans needed?  If it is relatively straighforward, why didn't you do it, Bob, when you had your shot at political power?  (3) When the Russians put up sputnik in 1957, and I'm old enough to remember the shock well, the United States went into a tizzy and responded with crash programs in science and engineering.  We founded inter alia what became DARPA (the Defense Advanced Projects Research Agency). But apparently we dropped the ball somewhere along the way, because Americans today are not getting the educations they need to remain competitive. So 50 plus years of jabbering about more education has produced the situation we find ourselves in today. Pretty ironic.

Could the lack of students in science and technology stem at least in part from the fact that we have jettisoned manufacturing as the central focus of our economy?  Could it be that there was little reason for our best and brightest to go into hard sciences and technology when the industries that used those skills were in rapid decline.  The educated classes could instead take their MBAs and do deals on Wall Street -- deals that made them quite rich at relatively young ages.

Since over two-thirds of Americans still don't finish college, one wonders what kind of jobs normal folk are going to be educated for. It used to be that a single manufacturing job could provide a family with a middle class life, and send the next generation to college if they were so inclined.  Not any more -- as manufacturing jobs have disappeared and those that remain pay less with fewer benefits.

No, more education is not the solution. It is necessary, but not sufficient. Putting an end to the era of foreign trade cheating and the hollowing out of the American R&D and industrial base is.  That, of course, would require the Obama administration and the Congress to  overthrow the last 20 or 30 years of one-sided trade policies, and respond to the current crisis with a whole new set of industrial policies that stand years of free trade agreements and the WTO on their respective heads.

However, that would also require the policitcal will, courage, and foresight to break with the conventional wisdom of the last three decades and start down a radically new path. It ain't gonna happen with this president and his team of economic advisors, who now think that we just haven't tried hard enough to export. For them, prosperity is just around the corner of the next free trade agreement. And any reevaluation of this approach would be protectionist heresy.  After all, look the domestic and international chorus crying protectionism when the President put some mild and perfectly legal tariffs on subsidized Chinese tires flooding the U.S. market.

So pushing more education as the solution sounds extremely reasonable.  Who could be against an educated workforce?  But will the educated  workforce actually have any real work to do if the foreign trade cheating and currency manipulation and the subsidies go on unchallenged and unabated? The answer is a simple no. All educated up, and no particular place to go.  Just like the college graduates of the last two Junes.

Sorry, Bob, education without massive trade policy reform is just another rhetorical trick.  And since it takes a full generation to really make a widespread dent in the "education deficit," the trade defict will have sucked most decent paying work out of the country in the meantime. More education is not the solution it's cracked up to be; in fact, it's a political wolf ticket.
 

The Jobs Summit generated this week by the Obama political machine was a political stunt, pure and simple. It was designed with cynicism in mind -- to trick the Congress and American people, who are demanding action to bring down an effective unemployment rate well above 20 percent, into thinking that the administration is interested in putting together a plan to increase employment.  The sad reality is this: Not only is there no plan, there is no clue as to how to create one.

Remember that there was a mini jobs summit at the White House shortly after the President took office.  And then there's the Volcker Commission, which presumably has addressed the issue in almost a year's worth of meetings.  Why have those failed, Barack?  Why didn't they come up with any good ideas or advice?  Tell us what the problem is? Or did Larry Summers, the prez's top econ guru, who knows nothing about entrepreneurship or creating jobs, simply toss the recommendations?

The Problem: At the basis of the Great Recession is a 30+ year old trade policy that has devastated our manufacturing base -- the factories, the jobs, and the many other related jobs it generates both up and down stream.  The trillions of dollars held by foreigners, earned through trade cheating, flooded back into the American economy, making possible the subprime mortgage bubble, the Wall Street dervivative bubble, the home-equity borrowing bubble, and the overall living-on-borrrowed money bubble. Foreign nations, especially China and other mercantilist states, kept (and keep) lending us the money to buy their goods on credit -- and in the process stole a good chunck of our industrial base and exported their potential un- and underemployment to us.

The Solution:  Fix that broken trade policy. If the Obama administration doesn't do that -- and they don't want to, any other steps, stimulus or otherwise, will prove worthless.  Reflating the US economy with printed dollars and massively increasing the national debt will do nothing to restore America's productive base.  Right now Obama and company, including the Democratic-led Congress, are merely restoring the status quo ante -- which got us into the Great Recession in the first place.  

Thus current White House policy, while creating the illusion of better times, is at base delusional.  The only real way out of the current economic mess is to PRODUCE our way out. That means cutting imports drastically, and reinvigorating US manufacturing -- so that the goods that Americans need and want are produced here by Americans.

We can only achieve that goal by turning current trade policy on its head, which the free-trade Obama administration refuses to do.  Ironically, though free traders, they do not believe in free trade in currency, and thus allow China to continue to manipulate its currency to spur its exports.

The Bottom Line: Nothing essential is changing, nor is there a plan to change it. Reacting to foreign and multinational pressure to keep trade policy as is, Congress and the Obama administration will shortly apply another stimulus band-aid, known as the jobs bill, to help them keep their jobs in next November's elelction.  After that money runs out, the deluge -- double dip with capital Ds.
 

If President Obama's naming of a Cabinet full of Washington insiders, most of whom played a part in bring about the current economic mess, wasn't enough to produce a sinking feeling in the pit of one's stomach, then the appointment of the President's Economic Recovery Advisory Board earlier this week certainly should have induced overall queasiness.

What began with the announcement that Clinton/ Capitol Hill insider Rahm Emmanuel, free trader to the bone, would be Obama's chief of staff has culminated in a Cabinet -- with the singular exception of Labor Secretary nominee Hilda Solis (and just maybe Hillary Clinton, we'll see)-- of "experts" who each played a role in bringing us year after year of trade deficits and the hollowing out of our major engine of wealth creation, our industrial base.  We've lost over 4 million manufacturing jobs and 40,000 factories employing 500 or more persons in the last ten years -- all courtesy of blind enthusiam for free trade.

It turns out that almost everyone in Washington is outraged at an $819 billion stimilus package -- but almost no one gave a fig as $750 billion trade deficits cut significantly into US growth annually. The economy would be at least $2-3 trillion larger annually were it not for these deficits.  It would also have many more good jobs for middle class families, who wouldn't have had  to dip into their saving or home equity or max their credit cards to preserve a decent lifestyle.

It turns out that for Mr. Obama -- in spite of the campaign rhetoric -- change means continuity, and that hope will soon mean despair as his administration unthinkingly tries to re-create the bubble economy that got us into this messs in the first place.  Worst of all, there seems to be no long-term plan for what the economy should look like at the end of four years and the expenditure of several, maybe many, trillions of dollars.  Call it industrial policy, call it economic planning, call it protectionism or worse, every other advanced country is doing exactly that.  You can't beat something with nothing -- and nothing is what we got so far in the way of policies to revive and expand our industrial base.

What happened to Paul Volcker's legendary feistiness when he chose his Economic Recovery Boards members -- or did Larry Summers and Emanuel choose them for him?  Volcker has been preaching for years --- almost as long as I have -- about the unsustainability of the "globalized" world trading system with its huge imbalances, including the build up of large foreign indebtedness here.  Yet he has surrounded himself -- again with one exception, the AFL-CIO's Rich Trumpka, with outsourcers and orthodox free trade thinkers.  The CEOs of GE, Catepillar, and Oracle -- come on!  They never met a US job they didn't want to ship overseas or a living wage they didn't want to cut. Economists Laura Tyson and Martin Feldstein?  I guess the only reason they have been appointed to the panel is that Adam Smith and David Ricardo are dead -- but they are worthy heirs wearing the mantle of fre trade orthodoxy.

Even the CEOs Obama gathered at the White House to push for his stimulus plan are free trade ringers.  The president said that they are the people who create jobs.  Sorry, Mr. Obama this country hasn't created a net job in an internatoinal traded industry in maybe 25 or 30 years.  Job creation in the private sector is in  the hands of small businesses == but domestic manufacturers have been systematically excluded from your Cabinet, your Economic Recovery Advisory Board, and your White House meetings.

Just to review some basic economics, there are three ways to create wealth: manufacturing, agriculture, and resource extraction.  That's it. The financial services industry is supposed to make its money on the spread between what it pays its depositors and what it charges its borrowers.  But it turned out that Bernie Madoff wasn't the only guy on Wall Street who was running a Ponzi scheme -- and his investors only lost $50 billion, a mere pitance in the multitrillion dollar nosedive in national wealth and retirment savings courtesy of Wall Street's creation of exotic but worthless financial instruments.

The failure of the federal government to police these instruments after the near collapse of Long Term Capital in 1997 put everyone on notice (including alan Greenspan, who helped arrange that bailout) of their inherent dangers was criminal. It makes the SEC's refusal to follow up on solid information that Madofff was a crook look like a pink tea party.

After this stimulus package passes into the economy -- and fails because it does not target wealth-creating US industry -- there are not many more opportunities left, because there are not many more dollars left before there is a complete worldwide loss of confidence in the dollar and a resultant collapse.

Mr. Obama has apparently chosen his path and surrounded himself with purveyors of failed thinking -- academic economists, politicians, and outsourcers from the business community.  He would be well advised to form a Domestic Producers Advisory Panel drawn from the three wealth creating sectors and laboe unions and meet with it often before the situation becomes irreversible. If he needs names, the US Business and Industry Council can provide them.  Without their advice, he and not George Bush is the 21st century Herbert Hoover.
 

In the disastrous November hearings on an auto bailout, Congress and the Bush Administration demanded business plans from the Big Three domestic auto makers – showing that they would remain viable into the future if they were given rescue funding.  The Big Three dutifully came back in December with their respective plans, but Congress stiffed them anyway.

This is the same Congress, of course, that has failed for years to write and pass a “business plan” for the nation.  Instead of finishing its yearly work, Congress relies on patchwork measures known as Continuing Resolutions and kicks the can down the road to the next Congress, leaving it to try to make some sense of the mess that the previous Congress has made with the nation’s finances. The following Congress, containing most of the same actors – and all of the rancor and partisanship (Cardinal Political Rule #1: party above country), doesn’t do any better. So chutzpah doesn’t begin to describe the demands the recently departed Congress placed on the Big Three (whose executives are admittedly without a doubt their own worst enemies).

The president, left to act in his favorite role as the decisionator, granted GM and Chrysler loan packages after several weeks of equivocating -- since he apparently did not want his place in history to include the title, “The Guy Who Left the Country with a Domestic Auto Industry.”  But the loans are only good until March 31, 2009 – when again it will be up to the new Congress and President Obama to take up the challenge.

But in the meantime, what, if anything, is the government doing to help the Big Three and their thousands of suppliers – who also supply much of the rest of U.S. domestic industry?  The conventional wisdom in Washington is:  Trillions for Financial Services, not a penny for Manufacturing.

Unfortunately, most of the auto suppliers can’t remain viable either without the auto-related chunk of their business.  That means that he thousands of other domestic producers are, right this minute, looking for replacement suppliers.  And guess where they are looking? Off-shore.  Sound familiar? Mindless government action forcing unwilling U.S. companies off-shore.  As an alternative, many are looking at completely moving their businesses off-shore close to a reliable source of supply and selling int what will be left of the American market from there.  I aviation, this would be known as a death spiral – with maybe one last remote chance to pull out.

What’s the government plan on foreign currency manipulation – which gives East Asian auto and auto parts makers a leg up on the Big Three?   The China Currency Act, known in the House as Ryan-Hunter and in the Senate as Stabenow-Bunning-Bayh, would give domestic companies the tools to fight foreign prices artificially lowered by currency manipulation.  The bill has been sitting around for two Congresses.  Barack Obama and Hillary Clinton are co-sponsors of the Senate bill.  Is there any chance that this bill will be on the new president’s desk, ready for his signature on January 20th?  No.  Let’s beat up Big three management and the UAW instead.  It’s so much easier for politicians and pundits to run their mouths than to actually do something constructive and pass effective legislation.

What is the government’s plan to address foreign Value Added Taxes, which the United States has seen as giving foreign competition a big boost for the last 50 years? Every president since LBJ (and all the Congresses since that time) have tried and failed to negotiate an end to the VAT rebate that occurs when a product is exported.  These export rebates, which are not countered at the U.S. border upon entry of the product, can range up to 25 percent.  Over 150 of our trading partners employ Value Added Taxes for precisely this reason:  it gives their exporters a big boost and a free ride into the U.S. market.
Again there is a bill that has been languishing in the House for two years sponsored by Reps. Pascrell, Michaud, Jones, and Hunter.  It would impose a border tax equivalent to the VAT rebate the product received in its home country. But the Ways and Means Committee has not even held one hearing on the bill.  Maybe Chairman Charlie Rangel (D-NY) is too busy tending to his tax-avoidance financial dealings or managing his numerous rent-controlled apartments in New York City to notice that the nation is hemorrhaging $750 billion a year in trade deficits, and that the VAT hurts U.S. producers in their home market and abroad – since U.S.-made products must pay the VAT upon entry to foreign markets, adding significantly to their prices.

There are numerous other unfair foreign trade practices that hurt the Big Three auto makers (which I will discuss in future blogs), but again Congress apparently has no plans to address them before March 31.  Why give the Big Three the famous “level playing field” that every Representative and Senator mentions in every stump speech?

Again, I ask, “Where’s your plan for business – in particular manufacturing business, Congress and the Executive?”  Throwing tons of the taxpayer money at the financial sector – without any oversight or controls – will not help the survival of manufacturing one bit.

 

Dear Mr. President-Elect:

You cannot have an effective Economic Recovery Plan without a strategic plan to revitalize the domestic manufacturing base. It is that simple. And at the same time, it's politically complicated because it means reversing decades of trade policies and international economic policies that will cause the East Asians, the Europeans, the developing world, and the multinationals B that spread so much money around Washington B to yelp loudly and in unison.  But it's got to be done or your Economic Recovery Plan will fail, the day of reckoning will just be postponed, and the climb out of the hole that we have dug ourselves into will be much more painful and costly    lasting a generation or more.

If the country is to come out of the current recession and not plunge further into a full blown depression, we need a massive effort to create wealth here in the US.  There are three basic ways to create wealth    manufacturing, agriculture, and resource extraction.  The financial sector does not create wealth    as its failed experiment with derivatives, credit swaps, and other exotic but meaningless financial instruments shows.  

The financial sector should make its money not on snake oil instruments but by loaning it to productive people, i.e., entrepreneurs who build factories and bring new ideas and new products to market    and employ their fellow citizens in doing so.  Over the last 20 years, finance has failed to do that effectively, seeing itself falsely as a wealth creator B when it was not.  In fact, the lust for wealth and greed were just dressed up in fancy, inexplicable instruments.  And now we are in the process of giving that industry a trillion dollars    without demanding any significant reforms    especially that the money be used to make loans here on shore to people and companies that can actually create wealth, employ their fellow citizens, and meets the needs and wants of the American people domestically.


We have lost 4 million manufacturing jobs and have seen over 40,000 larger scale manufacturing facilities close in the last 104 months.  We have created a trade policy and tax, environmental, safety, etc. policies that encouraging the outsourcing of factories and jobs.  We create wealth in China, Korea, Japan, Germany, et alia and then borrow that money back to sustain our middle class way of life. This system is collapsing and thus must be changed.  America must supply the goods and services its people want from its home market.

Clearly, there are few in policymaking who understand these basic facts.  The people that you have appointed so far    Emmanuel, Summers, Geithner, Richardson, Kirk, to name but a few    are those that helped create the house of cards that has collapsed. They are cheerleaders for the "globalized economy," which sounds very romantic and peaceful and interconnected but in fact does not exist.  They have created a system that simply allows foreign competitors to raid the US market with impunity while still largely keeping their home markets closed.

Where are the domestic manufacturers in your cabinet or administration?  Where are the CEOs of domestic   not multinational companies?  Where is the task force to create a strategic plan for domestic industry and agriculture ?

We cannot talk, negotiate, export, borrow, or print our way out of the financial crisis.  We can only domestically PRODUCE our way out of this crisis    creating wealth here at home and enjoying the volumetric effects of more productive money circulating in our economy   not the Chinese, Japanese, or German economies.  China needs to implement a developmental model that relies on domestic demand, not siphoning off wealth from our people and producers.  We need to rebuild manufacturing and put Americans back to work in good paying jobs with decent benefits.

Your administration needs to counter the Value Added Tax schemes of 150 of our trading partners with a border adjustable counter VAT surcharge.  Every trade round that has lowered tariffs has produced a concomitant rise in foreign VATs   which allows our trading partners to negate the effects of the tariff reduction.  Since the LBJ administration, Congress has instructed the Executive in every major trade bill to abolish the false distinction between indirect and direct taxation that is allowed under the GATT/WTO and that therefore permits the use of VAT export subsidies.  The Executive and the Congress have failed.  Foreign products get rebates upon being exported, but American exports to these same countries not only carry the cost of US taxation, but are then slapped with a VAT upon entry to foreign markets.  Small wonder that American producers find themselves uncompetitive at home and abroad.

The East Asians are notorious currency manipulators.  China's currency is reliably estimated to be 40 percent undervalued.  How can American producers compete with foreign products that receive a 40 percent discount through currency manipulation and an additional 20 percent through VAT rebates?  It's just not possible.

Then there are the problems of direct and indirect subsidies to foreign producers by their host governments, as well as tax holidays and massive intellectual property theft.


Simply put, products from these countries should not be allowed in American markets or, if they are, should be taxed accordingly to level the playing field.

Then there is the question or environmental, labor, and safety standards that our producers have to meet but foreign producers do not.  There are two ways to go: relax our standards B which no one wants to do B or enforce our standards on products entering our country at the border.  They don't come in at all B or if they are deemed safe, they pay the same costs B in the form of a surcharge B that American producers must pay.  Polluters must pay; again, it's that simple.

The auto bailout is absolutely necessary    but it must be structured properly    unlike the financial bailout, which is many times more expensive, and has not been structured at all.  Paulson and Geithner don't seem to know what they are doing    and yet you have appointed the latter as your Treasury Secretary. There is no oversight, no new regulation, and we have given them over a trillion dollars.  But we are ready to through away the core of our industrial base, the auto companies, rather than provide a secure loan for $25 billion.

Our state governments know auto assembly is a good economic deal.  The states fall all over themselves to give billions of dollars in incentives to foreign auto makers to locate in their particular state.  But the Executive and the Congress have taken the attitude "Trillions for finance, but not a die for manufacturing."  Manufacturing is the real economy. 70 percent of US R&D is done by manufacturers.  Historically, it is has been among the highest paying industries for the broadest numbers of working Americans.  The auto supply chain runs throughout the economy.  Auto parts makers also supply many other industries, but cannot survive if their Big Three business fails.  That will set off an immense ripple effect, sending remaining domestic manufacturers offshore to meet their needs. In fact, the failure of the Big Three is likely to be the biggest offshoring program ever B courtesy of lack of government understanding and foresight.

We ought to do with autos what we have still failed to do with banks B subsidize the mortgages rather than give the money to the financial industry directly.  Instead of helping the small guy, the homeowner in trouble, and keeping the money flowing through the system, we let the small guy fail and then set off a crisis of mammoth proportions.  If you don't want to give the Big Three money directly, then give car purchase vouchers to the American people.  They would have to be spent on Big Three products that are actually made here    not in Mexico, Brazil, Korea, Germany, Japan, etc.  We could Agreen up@ the program by getting all older vehicles off the road.

The program could be progressive.  The lower one's income, the greater the voucher.  $50 billion in a graduated program would probably put between 3   5 million new cars on the road, a significant increase over the 10 million expected to be sold here domestically this year.  The Big Three's creditors would continue to lend based on the income stream in the vouchers.  Plants could still be rationalized, but consumers (i.e., the market) would make the decision based on which cars are bought with the vouchers.


Want to send the auto makers into bankruptcy instead?  Fine.  But the bankruptcy needs to be structured in advance.  The banks getting the one trillion dollars have to be required to lend to the Big Three B not willy nilly, but to be part of and approve the restructuring plans B so they make 5 percent on the taxpayers money.  Not the glory days of derivatives, just old fashioned, solid banking.

The general point is that we don't, because of some bad management decisions and overly generous union contracts, say the hell with you to all the R&D, the engineering expertise, the production teams, the individual workers skills.  These will not be reconstituted if they are let go.  Our nation will be much poorer and deeper in the industrial hole if that happens.  The costs of reentry will be insurmountable.

And the idea that we will just cede our auto industry to Korea, Japan and Germany is so unsound as to defy description.   The amount of money flowing to foreigners in what economists call rents and the amount of control that implies is unacceptable.  Further, do not buy into the myth that the transplants are as American as the Big Three.  They make their purchasing decisions based on home-country considerations, what's good for their national champion companies B  not on price, quality, service, location, etc., i.e., the normal market factors that go into a purchasing decision.

In sum, develop a strategic plan for domestic manufacturing or fail. Your administration desperately needs new thinking.  Your appointments to date B with the exception of Joe Biden's choice of Jared Berstein to be part of his economic team B just don't cut it.  It's not change and hope; it’s more back to the future with retreads and old, in the box thinking.  Much more is needed if your presidency, and the nation, is to succeed.