Cash for Clunkers
Research for Online Investors

by John Dalt

7/31/09

“Cash for clunkers” is a great example why the government is not capable of running the health care system. The clunker program offers up to $4500 for your low gas mileage, less than 25-year old car.

When you trade in your gas-guzzler the dealer advances the $4500 credit, destroys the car, and bills the government.  This is where the wheels come of the program.  One dealer said it took five hours to fill out the paperwork for one clunker.  Truth number one: Government runs on paperwork.  So much for streamlining health care claims processing, and squeezing all those legendary “inefficiencies” out of the claims process.

The “cash for clunkers” program was funded with $1 billion and projected to run until November 1.  After one week, they are out of money.  This teaches us the government has no idea what anything is going to cost, they guess.   Sometimes worse than a kid on a playground.

The “cash for clunkers” program was designed to take gas-guzzlers off the road and replace them with fuel-efficient cars that would help reduce gasoline consumption.The problem was that most of the fuel-efficient cars are built by foreign manufactures.

The biggest winners will be foreign manufacturers.  Same with national health care.  Chronically uninsured American Citizens count about 9 million, less than 3.3% of U.S. population.  The uninsured rate for illegal aliens is almost the reverse. According the Pew Hispanic Center, illegal aliens counted 11.9 million in October 2008.

The primary purpose of “cash for clunkers” was fuel mileage.  The truth is, not really.   You can qualify for a rebate by trading in a pickup that gets 17 miles per gallon for a car that gets 21 miles per gallon.   That is going to make all the difference in the world.  If you want a Crown Victoria, it automatically qualifies you for $4500, plus your kids won’t ride with you anymore.

If you would like more information, here is the government website, “Cash for Clunkers.”

One last observation on the “cash for clunkers” program.  What economist believes destroying property is a good thing?  Every “clunker” traded in has to be destroyed.  Removing products from the market while they still have economic life destroys value, thus a drag on the economy.  This program is counter-productive.  We borrow money to destroy value!  If this made sense, why didn’t we level every foreclosed home in the U.S., or GM’s headquarters and plants, or every bank building that was in financial trouble and needed TARP funds.

Our headlong rush into carbon credits and the global warming boondoggle may have hit a wall.  At least if Oh! Bama and other true believers guard the U.S.’s interests rather that sell out our economy.   At the recent G-8 conference, India and China left little doubt about their attitude towards limiting energy usage to cut carbon emissions.

The world changers had a great foil in President Bush, although they never admitted publicly that the Kyoto Protocol would never have passed the Senate.  Now Oh! Bama is confronted with developing countries that will not take part in any restrictions on their economy.  Some in the administration seem to believe we should “do something”, even if other countries increase their emissions greater than any reductions we could ever make.  Forbes has a great article on climate change.

Today's chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow/gold ratio or the cost of the Dow in ounces of gold. It currently takes 9.8 ounces of gold to “buy the Dow.” This is considerably less that the 44.8 ounces it took back in 1999. When priced in gold, the US stock market has been in a bear market for the entire 21st century and is currently trading 78% off its 1999 highs. The recent five-month rally, however, has the Dow (priced in gold) putting in a significant test of resistance of an accelerated downtrend that began in mid-2007.

Quote of the day:
“A society that puts equality…ahead of freedom will end up with neither.”
----Milton Friedman

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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