Friday, December 12, 2008

Bail Me Out !

US Senate Rejects US$14 billion Auto Bailout

A US$14-bil emergency bailout for US automakers has being rejected by the Senate on Thursday night after the United Auto Workers union refused to accede to Republican demands for swift wage cuts. Without any financial funds for the US automakers, the world largest automakers General Motors and Chrysler LLC are expected to go bust in a matter of few weeks time.

This decision by the Senate is going to have a really big impact on the economy. The Dow Jones industrial average has already fell 196.33, or 2.24 percent, to 8,565.09 in its openings, as investors sentiment on the market worsen.

Yes, the free market law says, only the efficient firm can be left survive in the market. But, not at this moment. The Senate doesnt realise how big the impact would be if GM goes bust.

Millions would lose jobs.How long will this global economic meltdown would be, all entirely depends on how fast US is spending again.And with one million jobs due to be loss in a couple of weeks time, the outlook for 2009 and 2010 is set to be even gloomy than ever.This is because, a bigger unemployment rate will lead to a greater decline in overall GDP in the country. Life would be much tougher now for the President-Elect Obama, because he needs a even BIGGER stimulus package which includes creating EVEN more jobs since unemployment numbers are expected to increase.

Related Industry would be heavily hit as well. Earnings of related industries such as tyre manufacturer, US-car Service Shops, Spare-parts manufacturers will be also be badly hit as the demand for the end product or complement product has stopped. Thus, forcing these related industry to go bust as well, which in turn will create even more unemployment.

Weaker Consumer and Investor Sentiment. As investors and consumers starts to see how severe the problem has become, they would start selling off their shares to gain any possible profit they can get,which will cause the stock market to fall.

Final Words. The economy is in such a weakened state right now, that adding another possible loss of millions of jobs is not something that the US economy can sustain at this very moment point of time. But none the less, the US government would now have more reserves needed to bailout any potential companies who are in better conditions compared to the auto makers.

Thanks :)

No comments: