"Cash for Clunkers" or a kick in the ribs?

I am not a licensed financial advisor, nor do I have a degree in economics, but I do have a brain. It seems that The Man does not.

The current view is that we have officially been in a recession for a year and a half now. How did we get here? Well, my view is that the country on a whole (The Man is waving the banner at the front of the parade) is living on a non-sustainable budget. Spending more money than one makes can only last for so long before you run out of credit. Oh look, Ma, a credit crisis! So how does The Man propose to get us out? Ooh, ooh! let's throw money we don't have at it. Fill the hole, loosen the credit markets and get the economy running again. My prediction: it won't work. Well, not for long.

My view is that the economy was fundamentally broken long before a year and a half ago. We have been in a slow death spiral for quite a while. At first, we didn't even know that we had a large tumor growing in our liver. We put on a few pounds but we chalk that up to eating out a little too much. Really, that few pounds is a malignant tumor that is taking up more space every day. One day, while out shopping for a new shiny gadget, we collapse, knocking over the salesman, who falls and grabs the store manager for stabilization. The manager tips over some manikins which conk the box-boy on the noggin, giving him a concussion. But he gets up and rambles through the store, knocking things over and leaving a trail of mayhem wherever he goes. The manager tries to keep the box-boy from wandering out of the store, but in a freak accident, the fluorescent light display near the door crashes down and sets the display on fire, blocking the exit behind box-boy. The store is consumed by fire, as are the neighboring businesses. Box boy leaves the area and shares his anti-Midas touch, which quickly infects every city on earth, which ends up as a smoldering rock orbiting the sun.

Okay, I may have gone a little too far there, but even you can see that that tumor was lethal. We really should have checked that out a little sooner. But, as proud as we are, we just kept paying those minimum payments and refused to get help because nothing was wrong.

This is exactly the situation that we were in when The Man introduced Cash for Clunkers. Most people are up to their eyeballs in debt (thus the credit crisis) and what does he offer? Give me your old car (which presumably works just fine, albeit a bit of a gas guzzler), and I will let you buy a new one for $4500 off the sticker price. In the mean time, you will be spending money you wouldn't have otherwise been spending, which either puts you even more in debt (most people finance cars) or spends your savings, which honestly, you should be saving for a rainy day because this storm isn't over.

This move puts a little bit of money in the automobile sector, while no other sectors get any of this Sweet [Uncle] Sam Pie. Well, the financial sector may get a piece from all the auto loans. Looking at the passed out liver cancer patient on the floor, we just put a band-aid on his head because there was a little scratch there that was bleeding. I hope he feels better now. Why don't we give him a good kick in the ribs while we are at it?

The only thing that will fix this is to fix the root cause. Debt must only be used for good, not evil. Don't purchase your new couch or TV or shiny new gadget for $50/month, give that man cold-hard cash. Most of us don't have the $250000 for a house, so save up for a down payment and get a fixed-rate loan. No ARMs, no balloons, no surprises (and read the fine print, for crying out loud; you are signing away a good part of your life, don't do it quite so flippantly). Save your money and exercise patience. You will find it to be more rewarding than getting things now, Now, NOW! While this is an individual exercise, everyone must do it (or at least the majority) in order to have a truly healthy and growing economy. And that includes The Man, whose debt is now so large that he will soon need to invent new numerical methods to describe it.

Just say no to debt. It seems that it is addictive after all. Just say no!