The Article: http://www.cbc.ca/money/story/2009/03/05/gmannual.html
Once again, General Motors Corp. is suffering from an financial crisis. It has been said that they have a high chance of bankruptcy if they don't come up with a restructuring plan soon. Recently, GM's shares have 17 percent. Even bailouts and loans worth billions of dollars from the government doesn't seem to be helping much. On February 17th, GM's restructuring plan was to lay off 47, 000 workers, 4000 of which would be in Canada, all by the end of the year. Following this, five GM factories would also be shutting down. This financial crisis is happening because of GM's "inability to create sufficient cash flow."
The reason behind why GM is on the brink of bankruptcy can be explained with the circular flow of money diagram mentioned in Chapter 6 of the textbook. According to the diagram, any time there is a lack of consumer spending, it hurts the businesses' profits. Because households and businesses are interrelated, once households start investing and saving, businesses will counteract by laying off workers, trying to regain balance in the economy and like how GDP tries to maintain an equilibrium. Because so many more people are saving their money, GM has to lay off many jobs. Households saving money also relates to the paradox of thrift, which explains the situation when one tries to save money, but end up saving less. If one is employed at GM and starts saving money, they are only hurting themselves, as they may be laid off, therefore having less money to save.
In my opinion, I think it is a shame that many people don't know that investing and saving their money will harm the economy even more. It affects GM in a way that forces them to lay off many, many workers, which then results in even more people trying to save their money. I think if everyone was informed about the circular flow of money, they would know that spending more would help the economy, and help any big companies that are on the brink of bankruptcy. If people spend on the big companies, they will produce more units, therefore creating more jobs. In addition, seeing that government bailouts and loans are not helping GM, it seems like the only way for GM to climb out of this financial situation is if consumers spend more and save less.
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- picassoingsome-thing
- I like to paint, and draw, and eat. I am proud to say that I love going to comic book and anime conventions, even if that means taking a trip from my beautiful city of Vancouver. Simple things are always the best because life is a tangled ball of yarn. I'm also an avid fan of tea, board games, and giraffes!
2 comments:
I agree with your reflection, in order for the economy to get back on track, people need to get back to spending the cash and not save. If so, the paradox of thrift will take over ! The reason for investment and savings is because people are scared they will lose what they already have but they don't know the consequences. General Motor is in an "inability to create sufficient cash flow." because they aren't making anything new. I don't expect people to buy the products they already have anymore if they don't have anything new. GM having to shut down factories and lay off workers will only hurt GM more, but it is inevitable because they are slowly running out of money.
Harry
This article is practically similar to mine. I also agreed with the fact that it’s a shame how people think that saving money will benefit them when really it only causes the economy to become worse. However if the circular flow of money was well more known, people would know that spending more is actually the solution to an economic crisis. The cycle is basically sectors helping out each other when in need by having money circled around; with people spending their money, they are giving it towards businesses that are possibly on the brink to bankruptcy (like GM in this situation). Personally I think that this idea is doubtful because really it’s only human nature that people want to save money – especially at a time when there’s an increase in unemployment; it’s going to be very difficult to convince people to spend more and save less.
Stephanie Murao
Block F
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