Curried Wealth Building
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June 25, 2009
Issue 51  -  Of Dolts and Knuckleheads
Once in a while a government does something so inept and lacking of foresight that it simply boggles the mind.  My belief is that the government should be small and stay out of the way.  Provide for the common defense (not the common empire) and maintain order at home while making as few laws as necessary.  This is obviously so far afield from today's government that it's not worth comparison.  Case in point here is the so called "cash for clunkers" initiative that congress has sent to President Obama for signing.  This "stimulus" plan is so idiotic and self contradictory that it is really hard to know where to start in critiquing it.
First, some of the details in case you don't know about this lunacy.  It will give people a credit to buy a new car if they trade in their "old" clunker.  The old car must get 18 miles per gallon or less and the new car must get at least 4 mpg more than their current "clunker."  This scenario would qualify for a $3500 tax credit.  If the car gets at least 10 mpg more than a $4500 credit is given. 
This is being touted as an environmentally friendly bill but is 4 mpg more a great savings in fuel?  Ten isn't bad but if your current car only gets 12 miles a gallon than a new car that gets 16 mpg would get you the credit.  Wow, that sure will help the foreign oil dependence won't it?  There are cars that get 40 mpg, so why are we giving credit for cars that are borderline efficient?  Because this is a bailout to Detroit, that's why. 
Oh, about bailing out Detroit, you probably have to buy an American car, right?  After all, the tax payers are the current owners of two of them so at least let's help ring up a few sales. If you are thinking that is the way to go, you'd be right in your thinking.  However, congress, as usual, has it all wrong.  The World Trade Organization has threatened anti-trust suits, so the government is going to give credits for buying Hondas!  Or BMWs!  Or whatever!  Holy cow, are these guys brain dead.  Is congress being run by third graders.  Actually that's an insult to third graders. Even they would know not to do something this stupid.
As far as the environment, how about what happens to your trade in?  Let's ship them to Mexico and let the poor have them so at least they have a use.  Good idea?  Not if you're congress.  What's their bright plan?  They are going to junk them!  Every frickin' one them is going to be scrapped.  That's right, the new car dealer scraps your car so unless your car is worth less than the credit, the bill won't help you.  Parts can be sold off but the drive train and engine MUST be crushed.  Is this ridiculous or what?  We are up to our eyes in debt and the government is paying people to junk perfectly good cars.  This stuff can't be made up.  A country that has a shrinking manufacturing base just can't afford to be junking useable cars, and yet we are paying people (with borrowed money) to do just that all the while standing up and claiming we are "doing" something.  
As with any truly "beneficial" program there are unintended and in the case of the government unexpected consequences.  Witness the many cash for clunkers web sites popping up.  Now some of these are legitimate but a good number are fishing for information by informing people they have to pre register. (which isn't true)  So, due to the benevolent government's actions, some of its fine citizens are going to have their identities stolen.  Just plain brilliant.
As with any government program this one will cost more than you would originally think. Not only is the government giving you a check to buy a new car, but the dealer is given a fee to scrap it.  Words can't describe how dumb this is.  Borrowing money to pay people to destroy property is the height of arrogance and recklessness.  Don't forget the beaurecrats that will be necessary to run this nonsense and the printing costs of the checks.  This is all like watching a monkey chase it's tale.  The only difference is these guys are elected.  We are truly doomed.
Now if you really think about this bill, you will eventually figure out that you don't get a trade in value for your vehicle.  Hell, how can they give you a trade in credit if they have to destroy it?  So very few people are actually going to do this lunacy, but still we have congress out their slapping themselves on the back for "helping" the little guy.  Oh did I mention that this program is available to Bill Gates.....and Warren Buffet.  You know, really hard up guys.  There is no income limit on this craziness.  So theoretically, you could have Donald Trump take a 1984 car in the back lot of one of his hotels and "trade" it for a new Mercedes and the government will pay the first $4500.  Nuts, just nuts.  We have the three stooges running things up there.
Our government has long ago strayed from its intended purposes and goals and now runs roughshod over common sense and the citizenry.  The day will come when enough will be enough and everyday folks will march on Washington to demand a stop to the lunacy.  With this bill, that day is closer than ever.  Too bad it will take a great depression 2 to get people's attention.  Unfortunately, that is what's coming.  As sure as another government program to "help" the people. 
A Must Read
I have talked about the housing market and how it is nowhere near a bottom for some time and there is an excellent article on called the debt conundrum which is really a must read.  One highlight:
"A housing rebound is a virtual impossibility based on any honest assessment of the facts. Homeowners currently have the least amount of equity in their homes on record. Real-estate Web site said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in the fourth quarter and 14.3% in the third quarter. There are 75 million homes in the United States. One third of homeowners have no mortgage, so that means that 41% of all homeowners with a mortgage are underwater. With prices destined for another 10% to 20% drop, the number of underwater borrowers will reach 25 million."
Reread that.  It should put a chill down your spine and realize once and for all that we are NOT coming out of this economic slump anytime soon.  There is just too much debt out there and it must be paid down.  Look at this chart from the article :
First note the numbers from 1945 are in BILLIONS not the TRILLIONS from 2008.  Now notice how the equity in 1945 was nearly 5 times as great as the debt while today, the debt is larger than the equity.  Our combined equity is now below 50% and falling.  This is not a good sign.  Keep that rainy day fund fully loaded.
I am trying very hard to get my final preparation plan up by Sunday.  This one describes what needs to be done to live off the grid for over a month.