I've seen this article before (and citations thereof), and while the conclusions it draws are plausable it seems even to a cynical bastard like me as a little tinfoil-hand-wavy.
The fact that GM owes a significant fraction of what the US government does (in corporate vs. treasury bonds, of course) is something that a MAJOR problem, and should be a great concern. I believe the US Gov't would be pressed to back the debt and bail GM out, at least to some extent, which could lead to the far more dangerous scenario of people trying to remove THAT debt.
In absense of other 'extreme' scenarios (oil suddenly running out, alien invasion, bush proclaiming himself no king but caesar, et al) here's how I can see it play out:
- GM starts to flounder. They put a lot of pressure on US Govt to reduce gas prices, because the only cars GM makes halfway decent are enormous gas hogs and high gas prices will have the natural effect of making people want to buy more fuel efficient vehicles. GM will need time to develop / steal ideas for their own affordable fuel efficient vehicles.
- Some 'strings' will be pulled, reducing the price of gas for a while. It won't be enough.
- US Gov't will give GM some additional backing, pushing off the inevitable for a while longer.
- In the absense of some amazing discovery or incredible turn of events that makes GM competitive once again, ultimately GM will fold or be left as a shell of its former self. Creditors and the US Gov't will be on the hook for the debt, many tens of thousands of people will suffer hits to their 401k's. Many fingers will be pointed and congressional hearings commenced as a dog-and-pony show attempt to mollify the now-hungry hoardes who'll be the ultimate sufferers of this incompetance and/or malfeasance. It will help push Interest rates higher by increasing the air of FUD regarding US investment (due to equally unsound financial basics in government spending), with attendant pain and suffering.
- Meanwhile, foreign investors that already see the dollar on shaky ground will continue to reduce their holdings. This does not mean a 'massive sell-off', but a limiting or cutoff on the UPTAKE of US debt. Remember, most of this debt is in long term treasury bonds that don't mature for a decade or two, you can't just demand payment on a whim. However, you can avoid buying more and convert the matured bonds to other currencies (like china is doing with the Euro)... the trick is in balancing how much to reduce spending in order not to fuck your own economy back into recession (japan), kill your vertical growth (china), or piss off the people you depend on to keep you safe (korea). I believe this tightrope act in the still putative 'asian economic bloc' will probably determine how hard or soft a landing the US has in the coming years. Someone should start a pool as to how long it'll be before Wal-Mart gets rid of the 'roll back'.
Of course, this is all crystal ball stuff, and is dependant on nothing external taking place to further decrease world opinion of the greenback (ie. more wars, other high profile bankruptcies, continued or enhanced financial incompetance by administration, accelerated interest rate hikes, inversion of the yield curve, etc etc etc). Don't plan your portfolio around any of this stuff happening... with the except of shorting GM. That one seems to be a pretty safe bet for now.
