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Sunday, August 2, 2009

Cash for Clunkers - Brilliant!

Yesterday, for the first time in months, we spent the day doing nothing. I spent a good part of the day sitting in front of the television and saw countless ads touting the new Cash for Clunkers rebate program. Ignoring the fact that the entire program has been on the verge of collapse (when they could actually get it to work), I read a piece this morning that, if correct, points out precisely how ridiculous this type of "stimulus" really is. The article can be found here -

- but I'm going to break it down into what I hope is a more digestable presentation.

According to the article there would normally be about 200,000 clunkers traded-in every three months. Under the new program they are projecting about 222,000 trade-ins. 222,000 - 200,000 = 22,000. Think about that for just a minute. The "stimulus" is generating about 22,000 more trade-ins than would have occurred otherwise. The bulk of the money is being used to subsidize purchases that would have happened anyway! Or, put another way, the federal government program has spent $1.2 billion (the program has a budget of $1 billion but that money had to be borrowed, so I'm including interest at 3% for 10 years) to stimulate the purchase of 22,000 additional cars - $1,200,000,000 / 22,000 = $54,545 per car. The NADA estimates that the average price of a new car bought in the US is $28,400.


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