Tuesday, March 22, 2005

If this guy is right, we're in big trouble! 

Jason Hommel of the Silver Stock Report says General Motors is nearly insolvent. He predicts the automotive giant will go bankrupt in three months to a year.

In an article he published online at Kitco on March 18, Hommel suggested that if GM goes down, it might pull the whole U.S. financial system down with it; hence the name of the article, "The Death of the Dollar."

Hommel looked up GM's vital financial statistics in Yahoo Finance and found that the company's market capitalization, i.e. the total value of its stock, added up to about $16 billion after the stock fell from $34/share to $28.35/share, and that the carmaker was in debt to the tune of $300 billion. Hommel thinks that GM will default on its bonds because it won't be able to cope with higher interest rates. Losses on debts this large will cause bond investors to lose faith in even larger debtors, such as the US government.

Hommel says, "The annual deficit is around $700 billion. How will the U.S. government sell bonds to finance the deficit if bondholders are getting wiped out? . . . Foreign nations are all sounding the alarm already that they will be selling U.S. bonds to diversify the holdings of their central banks: Russia, India, China, South Korea, Japan. . . . what major foreign nation is left to buy them?"

On March 21, a day that saw the Dow lose 64 points, GM stock rose $1.07 to $29.69. But GM is in major trouble. Last evening's Nightly Business Report on PBS announced that the company is going to cut 28 percent of its nonunion white collar jobs, and that it expects a negative cash flow this year. Reuters is reporting that GM has cancelled plans to build some new rear-wheel cars in North America. And the lead sentence on Alex Taylor III's Fortune Magazine article, "GM hits the skids," is "GM’s first quarter was a slow-motion car wreck."

GM is the world's No. 1 automaker. Isn't this the kind of blue chipper Bush and the rest of the neocon privatizer want you to gamb . . . I mean, invest your retirement in? Maybe this is why Bush is in such a hurry to set up "private accounts" for Social Security, to draw more money into Wall Street to prop up struggling megacorps like GM, and perhaps the entire US financial system as well.

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