We’ve previously mentioned our disgust with the cash for clunkers program. In essence, the government is borrowing money to help consumers borrow money to purchase an asset they likely have no need for in this tough economic environment. I mean let’s be honest, cars aren’t exactly the one thing people are looking to purchase when times get tough. And Lord knows the last thing this government or its consumers need right now is more debt. More importantly, you have to wonder how much this program will actually detract from future spending.
With stagnant wages, record job losses and near 10% unemployment just how much extra cash do consumers have to be throwing around? While it’s great that the cash for clunkers program is going to add 1.5% to GDP in the next quarter it’s truly unfortunate that this program is likely to take away from other segments of consumer spending. If you’re the consumer taking out a new loan to purchase a $20,000 car you’re not exactly planning your next big vacation right away or your next spending spree at the local mall. It will be interesting to see just how negatively this program impacts the retail spending habits in the coming quarters. If recent spending data is any signal it’s likely that the weak consumer is here to stay and Washington isn’t helping. But hey, they’ll sure promote that next GDP figure as a sign of recovery when it comes….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.