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GM falls deeper into the hole

Even though it is good news for General Motors (NYSE: GM) that the economy may not be forced all the way to it knees by the credit crisis, one by-product is that oil did bounce higher. Almost anything that helps GDP and consumer spending could put pressure back on commodities.

GM still hopes that the government will give it and the rest of the U.S. car industry $25 billion or more in loan guarantees. The companies say they can't afford to rebuild their plants to manufacture more fuel-efficient cars without the cash.

GM showed that it is drifting toward greater financial trouble when it drew down on its line of credit yesterday. According to The Wall Street Journal, GM "said it intends to draw down the remaining $3.5 billion of an existing $4.5 billion secured revolving credit facility to boost its liquidity amid uncertainty in the capital markets."

No one looking at the action would think that it is a sign that GM is doing better than it was earlier in the year. Due to falling car sales, it is doing worse. By exhausting one of its last life lines, GM is getting very close to a liquidity crisis of its own.

The government has, in theory, endless access to capital. It can print money and drive up inflation. It can increase tax bills and bring in more capital. Yesterday, GM sent out a loud signal that it needs cash. But, Congress may be sick of writing checks. GM is trying to get money at a time when the bank is closing.

Douglas A. McIntyre is an editor at 247wallst.com.

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Last updated: November 12, 2009: 04:01 AM

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