The Obama Administration hopes to stimulate demand through the "Clunkers" program. However, the program does not stimulate demand; it merely simulates demand. The government-created "demand" of the Clunkers program is not real because it is entirely supported by borrowing.
The billions of dollars that the Obama Administration is pumping into the program come entirely from the issuance of United States Treasury debt. The government deficit is running at an annual rate of 1.8 TRILLION dollars. That is one thousand eight hundred billions. Of those one thousand eight hundred, approximately three are being pumped into the Clunker program.
It appears that dealers are structuring their sales programs in a way that allows them to market the Clunkers program as a no-money-down offer. As such, the purchasers are really bringing minimal or no money to the closing table. As such, the purchasers are merely borrowing money.
The only sober conclusion is that the Clunkers purchases are supported entirely by borrowing, borrowing which can not be sustained. The federal government is already facing problems in credit markets. Interest rates on federal debt is rising in order to attract investors. Foreign powers who invest in U.S. Treasury debt (most notably China) have expressed their concern over the rate of federal borrowing. The federal government can not continue to borrow at this rate.
At some point, this feel good program will have to end, and with it the simulated demand for motor vehicles. Then what happens to demand for automobiles?
NEXT: REAL ECONOMIC DEMAND VERSUS SUBJECTIVE DESIRE
No comments:
Post a Comment