Is Cash for Clunkers Worth The Investment?

August 7, 2009

clunkers

By Nicole Andriso:

Even though the wildly popular “Cash for Clunkers” automobile purchase program is breathing new life into the automobile industry, many are not convinced the economy will benefit by putting even more government money into the program. Even so, the Senate just approved a $2 Billion cash infusion to keep the program running through September.

The new program, dubbed the Car Allowance Rebate System (CARS), has seen deal-hungry consumers flock to car dealerships faster than officials anticipated. In response to consumer demand, the House of Representatives met on July 31, to authorize an additional $2 billion to extend the program, which the Senate has now approved, as well.  The question still being asked though is whether plugging more taxpayer money into the program will have the desired long-term effect as an economic stimulus that was originally expected.

Dealer Woes

According to the official National Highway Traffic Safety Commission (NHTSC) Car Allowance Rebate System (CARS) website, www.cars.gov, under the program, car dealers credit the amount of the $3,500 or $4,500 voucher to customers who buy new cars, then the dealers get reimbursed by the government. According to an article in The Washington Post, dealers are frustrated with the system the government put in place for entering vehicle data on the website. Many dealers also find themselves strapped for money as they wait for government payments, some of them waiting for nearly $1 million in reimbursements.

Consumer Criticism

In a commentary on CNN.com, Harvard Economics lecturer Jeffrey Miron criticizes the plan’s destruction of any used car that is traded in for a newer model, with key parts such as the engine and drive train destroyed. According to Miron, by doing this the plan is “paying people to junk cars that still have economic value.” Many people who might have kept their good, older car for few more years are given an incentive to get rid of it. Plus, those with older cars might have a hard time finding certain car parts because most of them will have been destroyed with the old models, per the “Cash for Clunkers” plan.

Good for the Environment?

One of the goals of the CARS program is to reduce oil consumption.

Some officials are concerned the program will affect its environmental goals. The question is whether there is even sufficient evidence in one week to determine if the program is reaching these goals.  Senators Diane Feinstein (D-California) and Susan Collins (R-Maine) recently drafted a letter to Transportation Secretary Ray LaHood posing the question. The letter asked for better data related to the actual mileage of the old cars and what kind of mileage the new cars offer, “to determine if the fleet modernization program delivered significant fuel economy gains and oil savings.”

Plus, according to Miron’s commentary on CNN.com, many people would have traded in their old cars for newer models in the next two years anyway, and with all the new cars on the road, driving and fuel consumption might ultimately increase because people typically enjoy driving newer cars.

Bailing Out Government Owned Companies

According to the Wall Street Journal, some lawmakers have criticized the program as a bailout specific to government-owned companies, and compared the role of government to a used car business. Some are also concerned about the plan’s short, quick fix and doubt the lasting economic effects.

It’s been two weeks and $1 billion distributed, with $2 billion more in the pipeline. In the short term, people seem to be buying new cars. The question is not only whether these consumers can really afford to buy the new cars even with the savings, but whether the short term fix is the best way to boost the economy.  And if part of the plan is to reduce fuel consumption and promote the environmental merits of fuel-efficient cars, there might be better ways to do this. Maybe figure out a way to make people drive less and use less fuel, not drive the same amount or more in a better car.

Men’s Underwear Will Lead Us Out of The Recession

August 7, 2009

by: John Newcomer

The stock market is up, foreclosure filings are leveling off, but men’s underwear are down. That has more implications than you might think. Major news outlets like Newsweek magazine may have declared the recession over, but it ain’t really over until men’s underwear says it’s over.

Yes, according to none other than dean of the financial markets Alan Greenspan, the sale of men’s briefs is one of the most accurate predictors of economic conditions.  If sales are too tight, the economy is likely in a pinch.

Men’s Briefs Tell the Tale

In a 2008, National Public Radio (NPR) report it was revealed that Greenspan believed that men’s briefs were among the most accurate predictors of an economic crisis. “If you look at sales of male underpants, it’s just pretty much a flat line, it hardly ever changes” reported Robert Krulwich. “But on those few occasions where it dips that means that men are so pinched that they are deciding not to replace underpants.”  And so Greenspan says “that is almost always a prescient, forward impression that here comes trouble.”

According to Matt Hall, a spokesman for Hanes brand, “They (sale of men’s underwear) tend to be later going into a recession and earlier coming back.” Once men feel more comfortable with their finances, they will spend money on the inexpensive things that no one sees.

Sagging Sales Reflect Sagging Economy

And so it was –2008 saw a 12% decline in the sale of men’s briefs. Yes, men’s briefs were pretty much down around the ankles. But modern man wouldn’t resort to going “commando,” so it was predicted that the sale of men’s briefs would soar in the first quarter of 2009.  Alas, men’s briefs were sagging again –down 6%.

With all of this pent up demand, one would think briefs would have to turn upward in the second quarter and lead us out of the recession, but still NO.  The recession drags on.

Hanes brands just reported second quarter 2009 sales.  The bad news men are still wearing those old ratty and now thread bare underwear.  Sales again declined, this time 4%.  If there is a silver lining, the decline in men’s briefs has slowed.

Still,  with so many predictions that the economy is on the mend, some might suggest there are holes in this theory.  Not so fast.

According to Mintel, an English research company, for a recovery to start you will need to see sales increases of 2% to 3% annually.  Mentel does not expect men’s brief sales to increase until 2013.  Yikes!!!  Maybe some men ARE going commando.

This recession might just be the longest, smelliest one in US history.

Record Trillion Dollar Deficit — Who’s To Blame?

August 5, 2009

One trillion dollar billBy John Newcomer:

The United States debt is now in what many people consider to be scary territory. We recently hit the trillion dollar mark in over spending for the year, and the Congressional Budget Office (CBO) projects the entire 2009 budget deficit will hit $1.7 trillion.  That’s right $1.7 Trillion!

The amazing thing is the $787 billion stimulus package passed by Congress this year remains largely unspent. So far,  only 13 percent of the plan’s total has been doled out. Money from the other big bailout package, the Troubled Assets Relief Package (TARP), was spent last year, and health care reform is still being debated.  So what gives?

Lost Jobs = Lost Revenue

Well, this is one of those times when government spending is not to blame.  Following the numbers shows the real culprit to be unemployment.

Federal revenue is down, and not just down, but way down.  From April 2008 to April 2009, six million people lost their jobs.  That means there are six million fewer income taxpayers and that equals a drop in income tax revenue of 44%.  But you say the Federal government has other revenue.  Yes, but not near enough to offset the income tax loss.

In fact, total federal revenue in April 2009 plunged 34% or $138 billion from April 2008.  $138 billion a month times twelve months equals $1.66 trillion dollars less revenue a year.  In truth, almost the entire deficit is a result of lost revenue, not crazy government spending.

It seems the government acts just like an unemployed worker.  You lost your job but you still need to pay for food and shelter, so you charge it.  In turn, the government loses revenue, but it still needs to pay for Medicare, Social Security, and the military, so it charges it.

So What About the Stimulus?

The stimulus package was passed to stimulate the economy and reduce unemployment.  This in turn will increase government revenue and help to reduce the crippling deficit.  With so much hanging in the balance you would think that getting the stimulus out into the economy would be a top priority, but the money remains largely unspent.  Yes, when we want and need the government to spend money it seems as if they just can’t get around to it.  We live in an upside down world at the moment.

The American Institute for Economic Research published an article in April that reports that even when the stimulus package more fully kicks in by 2011, revenues still may not increase significantly enough to off set spending.  The reason?  Baby Boomers.

The 77 million baby boomers born between 1946 and 1964 will soon start tapping Social Security and Medicare.  But more importantly 77 million wage earners will be leaving the rolls as high taxpayers and high consumers. In the past, American consumers led us out of recessions, but we may be too old to do it this time.

Why Won’t Lenders Renegotiate Delinquent Home Loans?

August 4, 2009

House over cliffBy Terry Smiljanich:

Remember the Obama Administration’s “Making Home Affordable Plan”? The one that promised to help millions of financially strapped Americans who faced foreclosure on their homes by giving incentives to lenders to renegotiate their loans? And remember all the bailout money that the banks got in return for promises that they would do their part in getting everybody back on track? Well, guess what’s not working? And guess why it’s not working?

Although the plan was touted as providing much needed help to between 7 and 9 million eligible homeowners, very few citizens have actually been able to obtain a renegotiated loan under the program. Although the government is not releasing detailed statistics, it has announced that 200,000 modifications have been offered to date, but admits that only “tens of thousands” of loan modifications have actually been approved under the program. That’s not even one percent of the stated goal, a miserable record indeed! What happened?

Read more

Weak Debut for Former Countrywide Execs’ New Company

August 3, 2009

By Angie Moreschi:

Money SqueezeSo much for reaping big profits from the housing crisis they helped create.  PennyMac, the company launched by former executives at Countrywide Financial Corp, made a weak debut on the New York Stock Exchange. The company’s initial public offering was not up to expectations. The IPO raised $320 million, $80 million less than planned.

Still, it leaves a bit of a chill in the air to realize the past record of PennyMac’s execs didn’t impact the sale even more.  Countrywide’s ultra-aggressive lending practices and exotic loans are widely recognized as a major cause of the nation’s housing crisis.

Former Countrywide President and Chief Operating Officer Stanford Kurland and several of his co-horts decided to take a shot at making money off the misery their company’s loans created.  The company’s goal is to profit by acquiring delinquent mortgages from banks at bargain basement prices and then turn around and restructure them. Forgive us if we don’t wish them good luck.

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