GM Bites the Bullet… Will the Dollar Follow?

The company that epitomized American strength has gone the way of bankruptcy protection. I just can't help but think that General Motors' problems are nearly mirror images of the U.S. economy as a whole. Overpriced workforce, inferior products, lack of competition, slow response to necessary changes...

Tis all rather foreboding...

Of course, if you're a government statistician, you probably have a different view of things ― especially after the recent numbers oozing out of Washington.

The last time we sailed to together, I predicted the personal savings rate was headed to 5%. Low and behold, we learned this week that it has risen to 5.7%! Looks like I have ESP. I'm thinking about starting one of those 1-900 telephone numbers! (Are they even still around?)

Then on Friday came the job(less) report from the Bureau of Labor Statistics. A lot of people cheered…but only the ones who took the numbers at face value.

The data said that the United States only lost 345,000 jobs. That's still breathtaking, but after the nearly three-quarters of a million lost just a few months ago, it looks like real improvement.

But you may recall me talking about the mysterious "ghost jobs" that just magically appeared in the last report. Not actual people ― just people the government assumes must be working. Well, they're back to it again! In May they "created" 220,000 jobs (20% of which were supposedly in CONSTRUCTION!). Oh, come on, really?

The backside of the number is not much more encouraging ― 3.9 million long-term unemployed (those unemployed for more than six months). The long-term unemployed figures are what will really come home to roost. All these people, on a government-mandated insurance program, surely create an additional drain and add nothing to GDP.

Also, we must not forget those who have "dropped off the radar." The folks unemployed for so long, they've quit looking, quit drawing benefits, and quit trusting in the "Hope" and "Change We Can Believe In." The total number of unemployed now stands at 14.5 million Americans. Lord have mercy...

Now let's try this on for size. Remember all the feel-good consumer sentiment indexes that have been rising? Remember how I told you to be wary of them? Let's take a peek behind another curtain for a clearer view.

Last September, Americans added $6.98 billion in debt to household balance sheets. The three-month moving average for consumer credit was $3.436 billion in August 2008 and fell to $2.886 billion in September. At that point, the terror was coming into its heyday, and it seemed like the world would end and the sun was about to burn out. Americans began their own personal contraction ― a spending contraction. They took whatever available cash they had and put it against the tons of available credit balances. In March and April of this year, we collectively paid down $32.2 billion in debt. The three-month moving average for April was -$14.366 billon.

On top of that, as mentioned, Americans have been saving more, too. In fact, the savings rate is at a 14-year high.

Frankly, I suppose that people are feeling better because they have paid down some debt and have a bit more cash tucked away. But either way, they are not contributing to further consumerism.

As for the greenback itself, the U.S. dollar index is now fighting with the 80 level. It has broken below, moved above and is now heading lower again.