Life grows more difficult
"Credit insurer, Euler Hermes, has canceled insurance protection for suppliers of General Motors/GM and Ford/F, two people familiar with the matter told Dow Jones Newswires Monday.
"According to the sources, deliveries from the suppliers weren't covered by insurance in the last two weeks, as the risk of the car makers failing to pay them for deliveries is too high. Today, up to two-thirds of auto parts aren't produced by the car maker itself, but by suppliers, who must take on considerable credits for that. The cancellation of the insurance protection puts suppliers under additional pressure, making it more difficult for them to obtain loans. The suppliers might start demanding advance payment for their deliveries or set short-term payment deadlines."
Money, whether as cash or credit, is the lifeblood of the economy. Or so most people perceive. I believe credit in its literal meaning (faith, from the Latin credito), is the true lifeblood of the system. Lacking faith means you lack confidence in the system. And as the institutions with cash and deliverable credit hedge against a borrower's default risk by not making the loans and issuing the insurance they had done, they effectively self-create the very effect they seek to avoid: strangle the life from those companies in desperate need of credit or cash. Business diverts elsewhere, defaults begin, and the devolution gathers momentum.
-- David M Gordon / The Deipnosophist