For a less humorous version of the above, see here.

Yet right now, the world is focused on Greece, which is requiring a massive bailout from the IMF (partially paid for by United States taxpayers). As a stipulation of the bailout, the IMF is demanding Greece raise taxes and cut social benefits, which has predictably lead to rioting in the street.

I’ve had enough of the bailouts, but what’s more concerning to me is where Greece stands on a list of countries regarding their debt situation:

This information, from the CIA Worldfactbook, is actually a little old. A less complete, but more updated list (although still mostly from mid-2009) puts the United States at 96.5% instead of 94%, the United Kingdom at 425.9% instead of 365.4% and Ireland at 1312% instead of 998.9%! Wow, the United States actually looks pretty good, relatively speaking of course.

But look where Greece is on the list; 19th at 153% (at 170.5% as of 2009). That’s no where near as bad as Ireland, Iceland, the United Kingdom or the Netherlands. It’s also not much different than Sweden, Germany, France and Spain. And the United States is certainly doing what it can to catch up.

Greece was engaged in some deceptive tactics to hide their insolvency, such as hiding billions of dollars worth of currency swaps through Goldman Sachs. However, there’s no reason to necessarily think other governments haven’t been engaging in this kind of Enron-like accounting. And regardless, their debt is still multiples smaller than many fellow European nations.

Also, notice the countries who are saving: China, India, South Korea, Singapore, etc. As many have predicted, including myself, we are witnessing the rise of the East and the fall of the West.

Furthermore, it’s interesting how little debt many of the poorest countries have. Part of this is certainly because there are significant doubts as to these country’s credit-worthiness. But doesn’t it say something that while the richest countries in the world drown in debt, Bolivia—the poorest country in South America—has a debt/GDP ratio of 11.31%?

Regardless of the irony, these debt/GDP ratios are unsustainable. In all likelihood, Greece is just the beginning.

So we’ve had a jobless recovery because our economy grew 2.2% last quarter. Unfortunately, as Anthony Randazzo points out in Reason Magazine, most of that “growth” is based on temporary government programs:

“Consider that 37 percent of the third-quarter GDP growth was due to motor vehicle purchases, which were stimulated almost entirely by the Cash for Clunkers program… Another 20 percent of third-quarter GDP growth came from new residential investments, propped up largely by the First-Time Homebuyer Credit… Overall, government support accounts for roughly 77 percent of economic growth in the third quarter of 2009, according to my analysis of Commerce Department statistics. This means that non-Washington GDP growth was closer to 0.34 percent from July to September 2009, instead of 2.2 percent.” (2)

He concludes, “This is not real growth. It’s the national equivalent of a credit-card buying spree, with the bills—in the form of debt service and unfunded liabilities—to be paid off later. It is a faux recovery.”

Still, 0.34 percent growth, and continuously shrinking job losses does, potentially, show signs the recession will be over soon. The key word is ‘potentially.’ Regrettably, the fundamentals of our economy are still way out of whack. Stimulating home purchases just prolongs the needed correction in the vastly overinflated housing market and stimulating car purchases is just a way to increase consumer spending when Americans desperately need to rebuild their savings.

These programs also add to our immense national debt. The deficit for 2009 alone was $1.4 trillion, which was put on top of the $12.6 trillion in national debt. Some have estimated unfunded liabilities at over $100 trillion. (3) Sooner or later, we are going to have to pay back these debts. Or even worse, foreigners may stop lending to us, or even start liquidating our debt, which would cause a run on our currency. Furthermore, the Federal Reserve has more than doubled the monetary base which could have massive inflationary consequences if lending and velocity of circulation ever pick up. (4) And if the Fed tries to stop inflation by increasing interest rates, it would surely throw the economy back into a recession.

As bad as all that sounds, it ignores the dire situation we are facing in a very familiar setting: the housing market. Contrary to popular wisdom, the ‘toxic assets’ have not been cleaned out. It is very likely we are heading for a second mortgage meltdown.

A fantastic website called DoctorHousingBubble.com, has compiled a vast array of data on housing trends and the future looks bleak. Most of this data is for California, but much of it illustrates a larger trend in the country. The following chart shows when California mortgages are timed to reset from a low ‘teaser’ rate to an actual adjustable rate. See if you notice anything disturbing:

Source: DoctorHousingBubble.com

California is moving straight into some very dangerous territory. While most of the subprime loans have reset, most option ARMs have yet to reset. Option ARMs are even more dubious than the infamous interest-only loans, which allowed homeowners to pay none of the principle and simply rely on appreciation (i.e. inflation) to gain equity. Option ARMs allow homeowners to pay even less than the full amount of interest due each month (called negative amortization), which then just pads the unpaid interest onto the principle of the loan. And these teaser rates are about to disappear en masse.

Given the recent fall in housing prices, it is no surprise that the vast majority of Option ARMs are attached to houses that are severely underwater (the owner owes more than the home is worth). 73 percent of Option ARMs are severely underwater as compared to 50 percent of subprime and 25 percent of prime loans. (5)

Given all that, it should be no surprise that the percentage of Option ARMs becoming delinquent is skyrocketing. The following graph shows the percentage of Option ARMs in California that are delinquent:

Source: DoctorHousingBubble.com

Fortunately, only four states have major exposure to Option ARMs; California, Arizona, Florida and Nevada. (6) Unfortunately, what happens in these states can reverberate throughout the country. And even more unfortunately, as far as properties being underwater, it’s not as if California is the only state facing this problem. Not by a long shot:

Source: DoctorHousingBubble.com

There’s another problem in the housing market looming beneath the surface. Banks are not clearing out bad debt nearly as fast as it is coming across their desks. Loss mitigators are overloaded with case files and can barely keep up with them. Stephanie Armour of USA Today concludes, “Banks dealing with a surge in refinancing, mortgage modifications and defaults are overwhelmed with demand, so it can take longer to initiate a foreclosure sale.” (6)

Furthermore, banks have at least a short-term incentive to not recognize losses. If a loan is not performing, the loan is still recognized as an asset on the bank’s balance sheet. However, if the property is brought to foreclosure, that asset disappears. And banks typically lose the majority of their investment in the foreclosure process. Thereby, taking a property to foreclosure may be the right financial decision for a bank, but it makes their income statements look worse, which in turn makes their stock look worse.

What we see is a massive glut of ‘shadow inventory.’ These are properties in the process of being foreclosed on or sold by short sale (when the bank agrees to discount a mortgage so a property can sell). The following graph shows that not only are delinquencies continuing to increase, but there has been a massive increase in shadow inventory:

Source: http://Mortgage.FreedomBlogging.com

As you can see, while the foreclosure-in-process rate mirrors the 90+ day delinquency rate, the REO rate does not. REO (real estate owned) are properties that were foreclosed on but did not sell at auction. These are properties the bank owns and must sell to recoup as much of their original investment as possible (usually a relatively small fraction). In essence, it means there is a large glut of soon-to-be-foreclosed properties, which haven’t flooded their way into the market yet. According to the Amherst Securities Group, another 7 million properties are set to be foreclosed (as compared to 1.27 million in 2005).(8) Furthermore, based on data from the Lender Processing Servicers database, 7.5 million loans are delinquent and another 1 million are REO’s. The number of delinquencies has risen by 25% from January of 2010 as compared to January of 2009, while 31 percent of delinquent loans have been delinquent for over six months without a foreclosure process being initiated and 22.8% over 12 months. (9)

Sooner or later, these properties will have to go to market. At that point, the additional glut of housing on the market will create an oversupply of homes. This, in turn, will further reduce housing prices and cause even more homes to go underwater, meaning fewer homeowners will be able to refinance or sell a home without doing a short sale.

Some would argue this requires government action to stimulate the housing market. I would say that is like treating a heroin addict with heroin. Housing was artificially inflated and it’s going to come down, whether we like it or not. Furthermore, attempts at re-inflating bubbles usually end up inflating other bubbles. For example, the attempt to re-inflate the stock market after the dot-com bust brought much more inflation into housing than it did into the stock market.

Policy prescriptions are a moot point here, however. The big point is it appears we are heading straight into a second mortgage meltdown. Of course, that’s assuming the first one ever ended.
___________________________________________________________
(1) George Stephanopoulos, “Summers: Job Growth by Spring,” ABC News, December 12, 2009, http://blogs.abcnews.com/george/2009/12/summers-job-growth-by-spring.html
(2) Anthony Randazzo, “The Myth of the Recovery,” Reason Magazine, March 10, 2010, http://reason.com/archives/2010/03/10/the-myth-of-the-recovery
(3) For the deficit, see Brian Faler and Julianna Goldman, “CBO Projects 2009 Deficit Will Reach $1.85 Trillion,” Bloomberg, March 20, 2009, http://www.bloomberg.com/apps/news?pid=20601103&sid=aA8lChe4zUQU, for debt, see “U.S. National Debt Clock,” Last update March 22, 2010, http://www.brillig.com/debt_clock/, for unfunded liabilities, see Pamela Villarreal, “Social Security and Medicare Projects,” National Center for Policy Analysis, June 11, 2009, http://www.ncpa.org/pdfs/ba662.pdf
(4) George Melloan, “We’re All Keynesians Again,” Wall Street Journal, January 13, 2009, http://online.wsj.com/article/SB123180502788675359.html
(5) “California Sending out Approximately 475,000 Notice of Defaults for 2009 yet Overall Foreclosures Declining, Shadow Inventory, Q3 Defaults, Toxic Loans, The State of the National Housing Market, DoctorHousingBubble.com, October 21, 2009, http://www.doctorhousingbubble.com/california-sending-out-approximately-475000-notice-of-defaults-for-2009-yet-overall-foreclosures-declining-shadow-inventory-q3-defaults-toxic-loans-the-state-of-the-national-housing-market/
(6) “Option ARMs Enter the Eye of the Hurricane: The $189 Billion Recast Problem Targeted Directly at the California Housing Market, Of $189 Billion in Securitized Option ARMS $109 Billion in California,” DoctorHousingBubble.com, October 30, 2009, http://www.doctorhousingbubble.com/option-arms-enter-the-eye-of-the-hurricane-the-189-billion-recast-problem-targeted-directly-at-the-california-housing-market-of-189-billion-in-securitized-option-arms-109-billion-in-california/
(7) Stephanie Armour, “Another wave of foreclosure looms, USA Today, 11/19/2009, http://www.usatoday.com/money/economy/housing/2009-11-19-shadow19_ST_N.htm
(8) Ibid
(9) “Lender Processing Services’ February 2010 Mortgage Monitor Report Shows Pace of Delinquencies Slowing, But Delinquency Rates At All-Time Highs,” Lender Processing Services, February 2010, http://www.lpsvcs.com/NewsRoom/Pages/20100315.aspx

I've always been more of a lizard guy myself...

“Value is destroyed, not created, by any business that loses money over its lifetime. The fact is that a bubble market has allowed the creation of bubble companies, entities designed more with an eye to making money off investors rather than for them.”

Many have oversimplified that Buffet didn’t understand dot.com’s, therefore he didn’t invest in them; and this is why he was able to have the last laugh once the floor caved in on the bubble. As he says: “Risk comes from not knowing what you’re doing.” My feeling is that Buffet knew exactly what dot.com’s were, he simply chose not to bite. In the irrational exuberance of market surges, Buffet, as stated above, knew these companies were not making a profit. Therefore there was no true underlying value for most of them. Any great investor, or gambler, knows that the biggest wins usually come when you’re the 5% minority making the wager, and public opinion is going the other way.

As brilliant an investor as Buffet has proven to be, everybody loses sometimes. When you’re losses make shock waves over the Internet, it’s safe to say that you’ve arrived.

This is the kind of creature I could buy motorcycle insurance from.

Buffet rolled out the first Geico credit card in 2005. The Geico Platinum MasterCard was a new feather in the cap for the company, aimed at allowing Americans to do what they do best: spend. The credit arm idea, at least as far as it being a profitable one, has proven not to be “so easy a caveman could do it.” It has cost the company $50 million as Buffet sold off the credit card receivables for 55 cents on the dollar.

It’s always easy to second guess; frankly, isn’t that what 90% of the media (new and old) is here for? But it’s fascinating to me that Buffet wasn’t able to see a debt-riddled, consumption-driven society about to hit the wall when unveiling the Geico Platinum MasterCard in 2005. Every level of American society was (and is) drowning in debt: the consumer level, the city government level, the county government level, the state government level, and the federal government level. Almost every living, breathing human being is in debt, and many spend more than they make or what they’re worth. If there was ever a king of bubbles for Buffet to sniff out, I would think the American economy would have been it.

The great foreseer of the dot.com bubble must have forgot his number one sound bite on sound investing: “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”

Nicolas Cage has gone and gotten himself in a bit of financial trouble. It might surprise you that someone who makes tens of millions of dollars per movie could be headed the way of Lehman Brothers. However, when you look at the purchases he’s made, well, the reason for his money woes becomes somewhat more understandable:

- 30 to 50 cars and 18 motorcycles including a $500,000 Lamborghini, previously owned by the Shah of Iran

- Several supposedly-haunted mansions in New Orleans

- A jet

- A castle

- Two Bahamanian islands

- Over a million dollars worth of comic books

- And my favorite, a $276,000 dinosaur skull he won in a “heated auction with Leonardo DiCaprio” (1)

Apparently, a penny saved is a penny that can’t be spent on a Bahamanian island. It’s safe to say Nicolas Cage’s spending spree makes the average American, who had a negative savings rate for most of the decade, look like our frugal grandparents who love to recite tales of the Great Depression.

This summer, the IRS rewarded Nicolas Cage for his “efforts” with a $6 million tax lien on his New Orleans properties for unpaid taxes. So the IRS, lead by tax cheat Timothy Geithner, is cracking down on Nicolas Cage for unpaid taxes. How ironic. Or perhaps, “how fitting” would be a better way to put it. After all, I think Tim Geithner, our spend-happy Congress, the Federal Reserve, George Bush and Barack Obama can give Nicolas Cage a run for his money (what little is left of it) when it comes to irresponsible spending. Honestly, look at what our government has been doing:

- $700 billion bank bailout

- $25 billion auto bailout

- Take over of Fannie Mae, Freddie Mac, GM and AIG

- $787 billion stimulus package

- $2 billion “cash for clunkers” program

- $1 trillion injection of capital from the Fed (2)

- Attempting to pass healthcare reform which is expected to cost $1 trillion over 10 years (probably a low estimate) (3)

- Attempting to pass cap and trade which could cost the United States as much as $100 to $200 billion a year (4)

Much of this was done by Bush and the Fed, but Tim Geithner, as Treasury Secretary, has certainly pulled his own weight in the Obama Administration when it comes to fiscal recklessness. The United States is going to have a $1.4 trillion deficit this year, pushing the national debt up over $12 trillion. Furthermore, we may have as much as $107 trillion in unfunded liabilities; a sort of ticking time bomb nobody wants to talk about. (5)

And yet we spend, spend and spend some more. And yes, shocking as it may sound, some of this spending is of somewhat dubious merit. Remember some of the things that were put into the stimulus bill? (And keep Nicolas Cage in mind while doing so):

- $650 million for digital TV coupons

- $44 million for repairs to U.S. Department of Agriculture

- $200 million for the National Mall ($21 million of it for sod)

- $50 million for the National Endowment of the Arts

- $1.1 billion for the Amtrak, which, by the way, is chronically broke

- $2 million for North Miami households to switch to energy-efficient light bulbs

- $500,000 for a dog park in Chula Vista, California

- $50,000 for two dog parks in Lewiston, Maine (apparently Barack and Tim like dogs)

- $33,725 for automatically flushing toilets in Sumter, South Carolina

- $886,000 for a 36-hole “disk-golf” course in Austin, Texas* (6)

Again, we can’t give all the credit to Timothy Geithner, but he is the Treasury Secretary, so I think he deserves a large share. And while he has done a very good job of spending us into oblivion, I think Nicolas Cage could do him one better. Therefore, I am proposing Timothy Geithner step down and let the master of financial incompetence replace him. And while we’re at it, I think we should nominate Mike Tyson as the next Fed Chairman, just for good measure.

_________________________________________________________________

*Several of these projects were not officially in the stimulus bill, but instead were projects proposed to take place with stimulus money.

(1) Lindsey Robertson, “Nicolas Cage’s Outrageous Decades-Long Shopping Spree,” Yahoo! Movies, November 4, 2009, http://movies.yahoo.com/feature/movie-talk-nicolas-cage-spending.html
(2) Eamon Javers, “Bernanke’s trillion dollar decision,” The Politico, October 24, 2009, http://news.yahoo.com/s/politico/28677
(3) Nick Loris, “Treasury Admits Cap and Trade is a Massive Tax,” The Heritage Foundation, September 16, 2009, http://blog.heritage.org/2009/09/16/treasury-admits-cap-and-trade-is-a-massive-tax/
(4) Susan Page, “How much health care for $1 trillion?,” USA Today, July 15, 2009, http://www.usatoday.com/news/washington/2009-07-14-trillion-dollars-for-health-care_N.htm
(5) For deficit, see “Federal Budget Deficit Totals $1.4 Trillion in Fiscal Year 2009,” Congressional Budget Office, November 6, 2009, http://cboblog.cbo.gov/?p=422, For debt, see “U.S. National Debt Clock,” Brillig.com, http://www.brillig.com/debt_clock/, For unfunded liabilities, see Bob Brooks, “The 107 Trillion Dollar Problem,” Prudent Money Blog, June 25, 2009, http://www.mahalo.com/answers/economics/according-to-one-recent-estimate-the-unfunded-liability-of-social-security-plus-medicare-is-107-trillion-dollars-how-will-this-be-paid
(6) Terry Neese, “Stimulus Package Will Not Help Small Business,” Terry Neese’s Blog, February 2, 2009, http://terry-neese-blog.com/stimulus-package-will-not-help-small-business/

Should the United States Sell Alaska?

So the debt clock in New York City ran out of digits to show our actual debt, and the Congressional Budget Office (CBO) estimates the deficit for 2009 will be $1.85 trillion. Furthermore, some estimates place the unfunded liabilities at over $100 trillion. And to make matters all the worse, tax revenues have dropped approximately 18% due to the weak economy, the biggest drop since the Great Depression. David Walker, the former Comptroller General of the GAO, has said the United States is on pace for bankruptcy. Fiscally speaking, things look really bad.

So what should we do? Well, real estate developer Aaron Biston has an idea, and a petition to back it up. Sell Alaska!

It’s certainly not preferable. I like Alaska; it has some kind folks, cool scenery and a bunch of oil. Unfortunately, it’s probably the best idea I’ve heard so far on how to address the debt (even though 49 states sounds stupid). At the very least, it would prevent Sarah Palin from running for president in 2012.

Apparently Dissent is Now Unpatriotic

Remember back when George Bush was doing all sorts of bad things (and they were bad), and liberals were saying dissent is patriotic. Our founding fathers even said so. Well, apparently that only applies when the Republicans are in office. Leave aside Joe Biden’s claims that paying your taxes, nay, enthusiastically paying your taxes, is “patriotic.” Now we have Nancy Pelosi, Steny Hoyer and Harry Reid jumping off the deep end.

In an op-ed in USA Today, Steny Hoyer and Nancy Pelosi wrote:

“These disruptions are occurring because opponents are afraid not just of differing views — but of the facts themselves. Drowning out opposing views is simply un-American.”

Yes Nancy and Steny, we all know how unpatriotic protests and free speech are, especially in this country. At least their verbal assault on free speech isn’t quite as bad as Harry Reid’s assault on the English language. He referred to the protesters at the president’s propagandistic town hall meetings as “evil-mongers.” Yes folks, evil-mongers. I guess that’s technically correct English, but I think there’s only so far we should allow hyphenated compound words to go before the English language simply collapses in on itself.

Cash for Clunkers Rant

OK, it’s no secret we at SwiftEconomics are not a fan of Cash for Clunkers (see here and here). However, Barack Obama lauded it as a success since the car industry has been “stimulated.” Of course if the government had just bought a bunch of cars and then blown them up like they were in a B action flick, that would “stimulate” the car industry as well.

Here’s my problem; see, I’m trying to sell my car. Thereby the government is competing with me by making it much more favorable for those seeking to buy a car to buy a new one instead of a used one. They have reduced the number of people looking for used cars! In the world of unintended consequences, this one seems obvious: help the car industry and hurt the little guy trying to sell his car (by the way, I thought liberals wanted to help the little guy, not giant corporations such as GM).

So anyways, if anyone lives in Oregon and wants to buy a car, I have a 2001 Hyundai XG 300 for sale. It’s got 89,000 miles on it and is in good condition. Only $3900! Here’s the Craigslist ad.

Screw you government…

Timothy Geithner wants the debt ceiling raised. Makes you feel more confident about the U.S. economy, huh?

The public debt soared to $1.27 trillion in July, for fiscal year 2009. The current ceiling for the total public debt is set at $12.1 trillion, a figure the Treasury projects will be eclipsed by mid-October. This has Treasury Secretary Tim Geithner urging Congress to raise the debt ceiling, and raise it fast.

One would think if hundreds of billions of dollars in Treasury bills were being bought up by the Federal Reserve, that the administration would publicly address it, and revisit it, as more T-bills were being purchased. I’ve yet to hear one peep from the president about it. The reality is, such actions leave us at risk to high inflation, once the newly printed money picks up velocity of circulation in the economy. But let’s back up, and explain monetization of debt.

The federal government auctions off Treasury bills to the open market; this is another way of saying the government is borrowing money from individuals, organizations and countries, to pay for budget shortfalls. The U.S. government must borrow money to cover all government spending, that tax revenues do not. Due to the fact the government runs budget deficits virtually every year, interest payments on past debt issuance (Treasury bills) become increasingly more onerous. Imagine what an interest payment on $12.1 trillion amounts to? If you’re having trouble, here are a couple charts to assist you:

Click on chart for a larger, viewable version

Source: treasurydirect.gov

Source: treasurydirect.gov

Total interest expense for debt in 2009 sits at $340 billion, through July. In 2008, total interest expense cost taxpayers $412 billion. Onerous indeed. Combine this with a contracting economy, and therefore less tax revenue, and unprecedented government spending in 2009, one can see why people are nervous to loan Americans money.

Whether or not demand exists for American debt is an important issue. Do people believe in the American economy enough to become a creditor? Are creditors willing to expose themselves to risk over a short period of time, like 3 months, maybe a year, or over the long haul, like 7, 10 or 30 years? Will the U.S. credit rating take a hit, increasing interest rates on future Treasury debt? The level of demand for Treasuries really matters as long as government continues to run budget deficits and make interest payments on $12.1 trillion of existing debt. The government must have the ability to auction off Treasuries at will, for simple cash flow purposes.

However, there is another way to pay for budget shortfalls: printing new money. This works pretty much how it sounds. The Treasury prints additional money to pay for government spending. Because most of the money supply is electronic, it isn’t so much printing physical money, as it is fiddling with numbers on a computer screen. Money obtains its value from the relationship between the total amount of money circulating in the economy, with respect to demand for goods and services. If you increase the amount of money in an economy, and demand for goods and services remains the same, one type of inflation will occur.

Congratulations! You’ve taken the introductory course on debt monetization. The upper division course is known as The Art of Monetizing Debt. The process is, if not a secretive ordeal, then a tactical one. The art of monetizing debt begins with the same Treasury auction; the Treasury auctions off T-bills to primary buyers. After the dust of the auction settles, and demand levels are reported for each Treasury note, the Federal Reserve steps in and buys the Treasuries back from the primary buyer, on a secondary market. The Federal Reserve uses newly printed money to complete the transaction. Demand levels for U.S. debt are reported after the auction, which are not quite accurate, if the primary buyers plan to sell back the debt. Perhaps the artificially high demand is reported to help overall investor psychology in future auctions.

It’s difficult to believe that legitimate demand exists for Treasuries, if the Fed is buying a portion of them back within two weeks of an auction. And if U.S. government debt is being financed by the American central bank, well, we’re selling our own debt to ourselves. Monetizing debt in a straight-forward fashion would have the Federal Reserve purchasing Treasuries directly, without the facade of an auction to primary buyers, and later repurchase. The Federal Reserve’s plan to buy Treasuries and mortgage-backed securities is well-documented by the financial press. However, the president himself should discuss the risks of such a strategy with all of us, and his rationale for implementing it. This backdoor approach, a more artistic way, is misleading.

The Federal Reserve has bought $252.8 billion of longer-term Treasuries this year, and plans to make good on their promise of $300 billion in 2009 Treasury bill purchases. The program is supposed to end in October; ironically, the same time the public debt ceiling will be proven to be glass. (1)

The Fed’s balance sheet has expanded $1 trillion during the financial crisis to backstop organizations, buy up debt securities and lend to private firms.

__________________________________________________________________________________________________

(1) bloomberg.com – Fed Treasury Buying to Slow Before Ending in October

http://www.bloomberg.com/apps/news?pid=20601068&sid=aGVqgVC7POF0

(2) treasurydirect.gov – Interest Expense on the Debt Outstanding

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

Click on graph for a larger, viewable version

Real personal income should at least be flat if the government wants Americans to go into more debt, right? Remember, these numbers included stimulus checks. Source: BEA

Anyone whose paid any attention whatsoever since the financial crisis hit, knows that an economic mix of consumption and debt, like the U.S. has, is unsustainable. People should be paying down their debt and saving. Meanwhile, we have government leaders over the years who advocate going to the mall or destroying property to buy a new car.

Of course there are Americans who like Cash for Clunkers; it’s a recipe for a free rebate check up to $4,500, allowing a person to trade up to a car they like better. But once again, nothing is free when it comes from the government. Initial “Clunkers” funding was $1 billion, an amount that has already been used up. An additional $2 billion has been passed by Congress to extend the program. So, all of those “free” rebate checks are costing taxpayers a bare minimum of $3 billion. Considering it’s likely money we don’t have, like most new government spending, we’ll finance the program by printing new money, borrowing and/or taxing. Printing money causes inflation, an invisible tax on everyone as prices rise, borrowing increases the debt burden on every individual as well as puts upward pressure on the interest rates on American debt (making it more expensive for taxpayers to pay off) and taxing goes without saying.

While many industries struggle, why might the auto industry get a boost from a government program? Oh yes, that’s right; the Treasury owns 60% of General Motors, and a chunk of Chrysler. They backstopped these companies despite poll after poll of Americans opposing the idea. Like Cash for Clunkers, I’m not a huge fan of polls, either. They’re often misleading, and questions can be asked to drive a person to a particular answer. But, people are tired of their representative government being completely unresponsive to their wishes.

The Cash for Clunkers moniker exposes a disappointing marketing phenomenon: people are dishonest to sell things. “Clunkers” portrays the image that these cars are disposable, worthless piles of junk. In fact, the drivability or quality of these cars to be destroyed is irrelevant in this program. Cash for Clunkers is all based on fuel economy. If the “clunker” gets 18 miles per gallon (MPG) or less, bring it on in.

To top it off, a portion of the “free money” being distributed for new car purchases goes toward the purchase of foreign automobiles. Toyota gives the administration a tip of their cap. What’s a little inflation, debt and taxation to Americans when it comes to helping out foreign companies?

Cash for Clunkers is yet another example of government selecting winners and losers in the marketplace. While it gives automakers a short-term sales bump, it is highly likely the program will rob future car demand. And when I say short-term, I mean short-term. According to the research firm Edmunds.com, interest in the program peaked July 29th as people rushed to “act now” before funding ran out. Since, demand has sputtered. Based on internet-shopping data, Edmunds reports if current trends continue, auto purchase intent will fall back to pre-Cash for Clunker levels by August 20.

Based on Edmunds surveys, the first billion dollars of the program probably stimulated only about 50,000 sales that would not have otherwise occurred.