Forex Traders Paying Close Attention to Auto Bailout
Forex traders around the w
orld are following the progress of talks between the US congress and the three major American automakers. The influence of the US auto industry extends into almost every facet of the US economy. The future of the US auto industry could have a profound effect on the US dollar and forex trading globally.
Automakers Employ 2.5 Million
The automakers employ approximately 2.5 million people directly millions more at businesses that service the auto industry. The failure of the US auto industry would have a catastrophic effect on the US economy and result in millions of lost jobs. This, in turn, would send the US economy into a downward spiral that could be irreversible.
Execs Offer Plan
After the public relations disaster that was the last meeting between lawmakers and the chief executives of the auto industry the executives eschewed corporate jets for the trip to Washington. This time the automakers have a plan that includes restrictions on executive compensation and golden parachutes which have caused widespread resentment among the public.
Fear of Economic Collapse Spurs Bailouts
Although free market advocates have objected to the bailouts, arguing that bankruptcy would be a more effective way of sorting out problems in the auto industry, fear of economic collapse makes it likely that the bailouts will go forward. Forex traders and investors have been watching economic news from the US with great interest. The Bush administration opposes the automaker bailout suggesting that the industry take $25 billion in loans to retool aging factories. The administration also remains opposed to the $700 billion dollar bailout for financial institutions.
US Economic Data Weak
Economic data from the US has been weak and many leading economic indicators have been worse than expected. All indicators point to a recession that may take years to recover from. In the meantime Forex traders have been taking advantage of the strength of the US dollar on currency exchanges. Recession fears and risk aversion have been major factors affecting the performance of the dollar and how long this will last is anybody’s guess.
