GM, Chrysler May Face Bankruptcy to Protect U.S. Debt

[Southern Senator North Carolina Yankee]

Are you familiar with Britain car industry in the 1960s?

How is that relevant?  Yes, that industry was nationalized.  The fact that it was eventually closed was the error, not the nationalization.  Had it not been nationalized, it would have closed earlier.

In any case a better course than bankrupting these companies would be to simply not be 'paid back'.  I've never been able to understand this simpleminded knee-jerk desire to 'be paid back' - when that is precisely what you don't want in a depression.  You want the money to just fly off the printing press and be spent.  There's no upside to it coming back.

I think I am starting to understand your position more. In a Depression that is fine and dandy but in our present conditions the chances are such financially loose policies could lead to severe inflation once the economy returns. My question for you is where do you draw the line between Deflationary-Depression and Inflationary-Recovery and what policy changes would need to be in place to prevent the return of inflation and when do they need to be enacted?

[Southern Senator North Carolina Yankee]

I think I am starting to understand your position more. In a Depression that is fine and dandy but in our present conditions the chances are such financially loose policies could lead to severe inflation once the economy returns. My question for you is where do you draw the line between Deflationary-Depression and Inflationary-Recovery and what policy changes would need to be in place to prevent the return of inflation and when do they need to be enacted?

I think our current situation is clearly a very severe depression/deflation, and we are a long way from inflation/recovery.  I haven't actually thought about how to change policy once recovery begins, but I assume one would just stop printing/spending.  In any case inflation is preferable to what is occurring now.

What I fear is an inflationary/Depression. Which basically is what SAm has been describing where the currency collapses changing Deflation to inflation making said Depression worse, making Fed raise interest rates and driving us down even further into the whole then the 1930's. The only examples of an Inflationary Depression are Russin in the 1910's caused by ww1 cutting off trade. This speeded them to the the Russian Revolution. The other is Germany in the 1920's leading to Hitler's rise to power. If I have to choose between a Depression like we had and a Depression like Germany I would choose ours.