An interesting piece of information as to how our Federal Government is being financed comes from John Mauldin’s Thoughts from the Frontline (check under the heading Outrageous! – Artificial Deflation) that ought to outrage most Americans (even those on the left). The rub? The Bureau of Labor Statistics (BLS) is providing the government financing needed to pay for “Cash for Clunkers” by taking the money from Senior Citizens’ Social Security checks. How does this work? Let me explain…
The “Cash for Clunkers” program provided $4,500 cash credit for the purchase of a new vehicle with trade-in. If I were buying a car for $20,000 and receiving the cash assistance of $4,500, my net cost is $15,500 or a 22.5% discount. The BLS is defining that the actual sale price of the car was $15,500 for GDP growth purposes not the actual sales price of $20,000. This means that the $4,500 paid by our Federal Government has a value of zero, zip, nada, nothing, paper the walls with it.
Talk about deflation. $4,500 is all of a sudden worth nothing. Kinda reminds me of the Weimar Republic.
Multiply this single car ~20% discount by 800,000 vehicles and you have a significant negative impact on the GDP number (not actual GDP, just the number). Social Security cost-of-living adjustments are tied to the GDP number provided by the BLS. As the GDP number goes down more, the cost-of-living decrease to Social Security payments gets larger. In short, the Government pays seniors less money so that the government can use the money to pay for the “Clunkers”.
As Margaret Thatcher famously said, “The problem with socialism is that eventually you run out of other people’s money.” I wonder how our fixed income reliant senior citizens feel about funding the “Clunkers” program? For anyone who bought a vehicle through this program, you should visit one of Wilmington’s low-income high rise apartment buildings and ask them if they’d like a ride, because they just got taken.
Typical liberals. Spend, spend and the hell with all economic reality.