08/09/09 Baltimore, Maryland
We couldn’t pass up this opportunity to talk about the newest bamboozle on the market: ‘Cash for Clunkers’. We realize everyone is talking about it – but for good reason!
First of all, this plan, which is barely two weeks old, is already bankrupt. The Obama administration had to go back to the Senate asking for more cash this week, saying if they didn’t get more money, the program would be shut down by Friday. The Senate voted 60 to 37 to give the program another $2 billion.
The Obama administration says this will keep Cash for Clunkers going until Labor Day…which is about one month from now. Does anyone think that this is quite a bit of money to dump into a brand-new program to keep it running for just – one more month?
And as Bill has been pointing out, this is just another example of the government promoting the idea that the future doesn’t matter – just spend for today. He wrote in Friday’s essay: “Instead of letting the consumer buy a new car when he is ready, the feds give them money to buy now. So, he buys in 2009 and not in 2010. What good is accomplished? It is as if they didn’t expect 2010 to ever arrive…”
The Wall Street Journal backs us up here: “The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.”
But who’s worried about national wealth? Certainly not the US government, who, in the face of an estimated $1.8-trillion budget deficit this year, passed what is basically another auto bailout…to the tune of $3 billion.
Keep reading for Bill’s view on why Cash for Clunkers, and the other ‘stimulus programs’ won’t lead the United States to a recovery…
People believe that there is a recovery…and that it is the result of stimulus efforts by the feds. The results from the second quarter show the economy still contracting…but at a slower pace, just – 1% annually, rather than the – 6.4% recorded in the first quarter. This is heralded throughout the world as proof that the crisis is receding.
“It if weren’t for stimulus spending, the contraction [in the 2nd quarter] would have been closer to 4%,” says the editorial in the International Herald Tribune. “The stimulus is helping…and more stimulus would help even more.”
Oh? Would it? Let’s look at stimulus-in-action:
‘Cash for Clunkers’ is a hare-brained scheme…but that doesn’t make it unpopular. The idea is to stimulate demand by, well, giving people money. But instead of just giving them money and letting them choose what to do with it, the feds decide they need a new car. In order to the get the money, people have to buy one.
According to the press reports, the program has been a great success wherever it has been put in place – in France and Germany, as well as in the United States.
If so, why not apply the concept elsewhere? How about cash for houses? Cash for liquor? Cash for newspapers? Cash for trips to Europe?
What’s so special about autos, in other words? And why is it a good thing for people to buy cars?
Oh c’mon, dear reader…don’t pretend you don’t know. The auto industry is huge…with many lobbyists and many organized groups interested in its wellbeing. It is an old and well-established industry with plenty of political clout.
Tomorrow’s industries, by contrast, have no lobbyists…no organized labor… no pet congressmen…no political action committees. So who gets the money?
The above is just an excerpt from Bill’s standout essay from this week. You can read it in its entirety here.
Enjoy the rest of your weekend,
Kate Incontrera
The Daily Reckoning
Kate Incontrera
Kate "Short Fuse" Incontrera is a regular contributor to The Daily Reckoning. Ms. Incontrera was also an associate producer and writer on the critically-acclaimed documentary film, I.O.U.S.A. Before joining Agora Financial in 2004, Ms. Incontrera studied writing at The University of Cambridge and at Towson University in Baltimore, Maryland.
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Kate,
I consider this program one in the category of “benefits now, costs later.”
Car sales gains for July/Aug will of course be offset in the negative for September til ???.
Besides, aren’t we trying to get away from a car based, energy guzzling economy? Where are our innovators?
Ah, Cash for Clunkers is actually extremely smart.
See, the US government owns GM and Chrysler, and profit from their huge profits. For Japanese autos, the makers will deposit their profits to the BoJ who will then buy US Treasuries. Hell, even Hummer sales, benefiting the new Chinese owners, will eventually return to the US as China just keep on buying Treasuries. So the money will return to the government like magic!! The power of US Treasury debt is infinite.
Short Fuse: Well, they trebled the bet for this boondoggle. And we shall see just how much ‘pent up demand’ there truly is.
Will there be enough to ‘use up’ this ‘money’?
Why did a group of forty dealers band together to extend the pretend by offering their own version of cash for clunkers for the poor slobs whose cars didn’t qualify for the gubmint deal.
I could go on but I won’t. You look really cute in the hat though.
The only ones really benefiting from this boondoggle are the dealers. The dealers should be the very last to benefit from anything. No one can ever trust a dealer. They have licenses to steal and that is what they do. Always have
Why are so many people unhappy about this? If we have to pay taxes, let’s have it go for something that (a) helps the environment (removing the clunkers), and (b) boosts the economy (via auto sales). I have a friend who was able to take advantage of this deal and he said it was one of the best financial things he’s ever experienced.
just caught another news clip or two, seems the demand may not be all that great for this
your next column should be that demand has run out, and since we done ‘spent’ the ‘money’ we need to ‘do something’ with it
ahhh, but what? there’s an interesting trip down a rabbit hole
Oh Cindy! Why dont we benefit my industry also, solar power? Lets give cash for solar panels for every house in America! Then we’d help the environment even more, and we’d create a new energy industry, more eficient and cleaner, less dependent on oil… But no, Cindy is in charge, and she says ” Cash for clunkers indeed”…she must be smart…
C4c is hurting charity car donation since many of the cars being turned in for a voucher would have been donated to charity for a tax deduction. The sad part is that these cars are destroyed instead of given to the needy.
Need comfort, JMR? Here goes: In Sweden the government pays you to buy … drums please … solar panels! And since the US gov copies everything else from our country you’ll probably soon see it over there too. No worries!