Monday, August 10, 2009

Keynesian Clunkers

Zero Hedge has an excellent analysis of the economics of the "Cash for Clunkers" program that just got another $3 Billion of OUR money. Basically, the program is encouraging more personal debt and lathering on another heaping Cinnabon of debt onto the Federal err, taxpayers, books.

The Cinnabon of Debt!

From the article:

The $28,000 average price per car translates into a total sale value of $21 billion. Of that amount $3b will be borrowed by Treasury, the balance of $18b will be financed by the new owners.

A month from now the new payments will hit both households and Treasury. For Treasury the cost is $90 million a year. Just $7.5mm per month. Think of it as $7.5mm a month forever. For the households who are driving nice new cars the numbers are much worse.

If buyers finance their purchase with 8% money and a five-year payback the monthly nut for these cars is $375 million. Nearly $5b a year. The owners will have a fully paid asset at the end of the five years, but they have to pay for it in full. It comes to $500 per person each month on a fully loaded basis.
What? You mean it's not good to have another coupon book you have to pull and pay every month?

Over indebted consumers nearly killed us last year. CC’s, crazy mortgages, store cards, car loans you name it. We are not out of trouble yet from our debt binge. For the government to be crafting ‘solutions’ that just put another $18 billion of debt onto consumers is bad policy.

Simply put, this represents more flawed (panicked?) thinking on the part of our Democratic Masters, uh I mean, leaders, to jump-start the economy. Damned the cost! Full speed ahead. I have never been a big fan of Keynesian Theory - when I studied economics in the late 1970's, the theory was in the process of being completely discredited. But if you are going to do it, can't you at least do it right?

Yes, there may never have been such a "marriage of beauty and brains as that of Lopokova and John Maynard Keynes," but what we have right now is the marriage of socialism and power consolidation and it ain't pretty. But what the heck - we can all still afford a Cinnabon can't we? I sure hope so:

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