Tuesday, February 12, 2013

GM's "Saved" ... Detroit's Broke

How well or poorly companies do financially has a great deal with how well or poorly the cities in which they operate do as well.

The auto industry's 'hometown' has long been Detroit. It's also home to the UAW union.

Due to global and non-union competition, the U.S. auto industry has fallen on hard times over the years. As a result of these factors combined with a sluggish worldwide economy, the U.S. government kicked in tens of billions of subsidy dollars and came to the rescue of GM and its unionized workers recently. And if you believe what the politicians are saying, GM's been saved, so to speak.

But what about Detroit? How's it doing? Not well, thank you.  Not well at all.

Detroit, The Billionaire's Playground has the story:

"WITH the fourth anniversary of the Obama administration’s auto bailout approaching, the Detroit comeback narrative has settled into accepted history. . . .

Detroit was back! Unless, of course, by “Detroit” you meant the actual city rather than the auto industry, in which case, well, the picture becomes a bit more complicated. Battered for decades by the same problems — a steady loss of people and jobs, a soaring murder rate, a wholesale erosion of its tax base — the city now faces the prospect of running out of cash as soon as the end of the month, which would mean the largest municipal bankruptcy in United States history....       
Detroit needs money. While the salvation of the auto companies remains a signature achievement of President Obama’s first term, his inability to deal with the entrenched problems of cities like Detroit remains an enormous failure. When New York teetered on the brink of bankruptcy in the 1970s, it was famously told, in the headline of The Daily News, to “Drop Dead.” But then President Gerald R. Ford extended the city $2.3 billion in federal loans. That’s 1975 billions! An impossible sum to imagine in our current age of austerity."
Summing Up

Detroit isn't the only city that's either broke or going broke. Lots of U.S. cities are in similar dire straits.

High unemployment and uncontrolled government spending over a long time have combined with unfunded promises for very generous retirement benefits to public employees to create an unaffordable municipal government structure. Throw in added debt obligations for infrstructure improvements like stadiums and similar entertainment venues, and the disaster is in full force and effect.     

Yes, the Feds did loan New York money in the 1970s to pay its bills. But that was then.
Today the Feds have no money to lend. They're broke, too.
What's going to happen to return fiscal sanity to government and a healthy respect for the necessity of private sector led businesses to prosper so our country's finances can stabilize is yet to be seen.
But I do know that the clock is ticking loudly. Let's hope it's not attached to a time bomb.
Thanks. Bob.

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