Tuesday, August 10, 2010


Here in my car
I feel safest of all
I can lock all my doors
It's the only way to live
In cars

-Gary Numan

I want to start off by giving credit to Barquedust, who posted a blog entry on the “Cash for Clunkers” program a little while back. I did not read that until a few days ago, and it inspired the following rant. I added some of the CARS history and a few numbers from a CPA’s perspective, but the original idea for this post was his. I tried to add enough of my own perspective to make both entries relevant.

His blog, “The Conspiracy Exposed,” is definitely worth checking out.

The financial wizards in the Obama administration are going to fix the economy, and correct all of the greedy Republicans who did nothing but reward their rich crony friends, right? And you know it’s going to work, because you think O is the “smart” president, right?

I will grant you, that Georgie W. was no genius-heck he butchered the English language in ways I thought were only possible by professional atheletes on ESPN!.

But is Obama really smarter? Is he going to be any different than the Marxist idiots who have gone before him?

Forget the birth certificate, and his idiotic stand on the Arizona Senate bill. Let’s look at his track record, because, as I have said before, past behavior is indicative of future performance.

The Car Allowance Rebate System (CARS), colloquially known as "Cash for Clunkers", was intended to provide economic incentives to U.S. residents to purchase a new, more fuel-efficient vehicle when trading in a less fuel-efficient vehicle.

The program was promoted as providing stimulus to the economy by boosting auto sales, while putting safer, cleaner and more fuel-efficient vehicles on the roadways.

Since our financial wizards in Washington were already borrowing fifty cents of every dollar spent from China, the entire $3 billion program had to be financed at a cost of about $138 million dollars per year.

That’s every year until we pay China (or whomever they sell their debt to) back.

On August 26 the Department of Transportation (DOT) reported that the program resulted in 690,114 dealer transactions submitted requesting a total of $2.877 billion in rebates. It is interesting that foreign cars accounted for more than sixty percent of the sales under this program, which resulted in a gain in market share for Japanese and Korean manufacturers at the expense of American car makers. Meanwhile, Japan's own program excluded U.S. cars.

In a study published after the program ended, two University of Delaware professors concluded that the program had a net cost of $2,000 for each vehicle traded.

Adam Maji, a liberterian columnist, wrote, “ [Cash for Clunkers] destroys wealth by not letting these vehicles be used up over their useful life. It destroys wealth by routing scarce resources into activities (in this case, auto construction) that would not otherwise take place, denying other industries access to those resources. It destroys wealth by taking on liabilities, through borrowing, that have to be paid back later by the taxpayers (reducing their purchasing power in the future) or by taxing them immediately (reducing their purchasing power today).”

Peter Schiff, economic advisor to Ron Paul’s 2008 campaign and 2010 candidate for Senate, shares the same view of the program: “We've borrowed all this money, and we are basically broke, right? [...]Let's try to find a way to encourage people who have cars that work, and they have no loans, and let's see if we can get them to go deep in the debt to buy a new car they didn't need so that they can have a car payment."

Economist Christopher Westley said that the program "sticks it" to the poor and lower-middle classes by raising the price of the remaining cars in the secondary market, as well as by raising the general price level resulting from the monetary inflation required to finance it.

According to an Edmunds.com study released October 28, the program actually cost Americans nearly $20,000 more per car than the maximum rebate. Only 125,000 of the 690,000 purchases would not have been made without the incentives, the company said, and with $3 billion spent, that works out to $24,000 per car.

Critics argued that people trading in cars would use such funds to mostly buy trucks, with a minimal benefit on gas mileage. New federal data analyzed by The Associated Press finds that the single most common swap, at an occurrence rate of more than 8,200 times, involved Ford F-150 pickup owners. The fuel economy for the new trucks ranges from 15 to 17 miles per gallon, which equates to a mere 1 to 3 mpg improvement over the clunkers.

The Associated Press also noted that many not-so-green cars were purchased under CARS (Cadillac SRX, Hummer H3T, Lexus RX 350, Lincoln MKX and BMWX3) Many luxury cars qualified under the program despite being rated under 20MPG.

Let’s just use some simple math-I liberated the following amounts from Barquedust’s post since the work was already done. And despite what all of the studies say, let’s give the illegal alien in the White House full credit for his pipe-dream statistics.

A clunker that travels 12,000 miles a year at 15 mpg uses 800 gallons of gas a year. A vehicle that travels 12,000 miles a year at 25 mpg uses 480 gallons a year. So, the average Cash for Clunkers transaction will reduce US gasoline consumption by 320 gallons per year (according to the Emporer). They claim 700,000 vehicles so that's 224 million gallons saved per year. That equates to a bit over 5 million barrels of oil. 5 million barrels of oil at $70 per barrel costs about $350 million dollars

Seems simple, right. Now I’m going to take Barquedust’s calculations and analyze them from my point of view as a certified public accountant. I’m dropping that title out there to impress the heck out of you all, so ladies, comment back with your best swoon!

That $350M is a savings per year, so you’ve got to do a return-on-investment calculation to compare the present value of the future cash flows against your initial investment. This is a pretty standard calculation (every business major learned it in finance class) that is often used by corporations to evaluate an investment.

If you remember, this program cost $3 billion, so that’s the initial investment.

The $350 million saved on the 5 million barrels of oil annually are the future cash flows.

So let's assume the cars all last ten years (as if Detroit could build a car to last ten years), and calculate the present value of $350 million received each year, at the end of the year, using a discount rate of 4.6 percent (which is the interest rate on foreign US debt securities according to treasurydirect.gov). That number calculates to $2,755,884,764. Let’s round up to $2.8 billion.

Now you may think you’ve seen enough math for one day with the present value calculation-but we’re not done.!

The net present value calculation assumes that you HAD the $3 billion to start with.

Barry Obama did not-he borrowed it from our friends in China. And he’s paying them 4.6% (using your future tax dollars and your Social Security money) in interest each year to finance it.

That comes up to another $1.4 billion in interest over the ten years.

Let’s review.

Your genius candidate (I voted for Ron Paul so he’s not my candidate) will have spent a total of $4.4 billion dollars on a program that will save an estimated $2.8 billion.

Anyone with a PC and Microsoft Excel can easily check my math using the Excel net present value function. And most of these other figures can be pulled right from the Wikipedia entry on the CARS program. You do not have to take my word for it.

The net cost to American taxpayers is $1.6 billion dollars.

Now why would such a smart Irish guy like O’Bama do that?Perhaps to further bleed the wealth away from the US middle class through increased taxes and inflation and send us further into our slide towards Marxism?

Oh I'm sorry-is that just crazy conspiracy theory talk?

Everyone with children-you’re leaving your children one heckuva inheritance. I hope the new truck was worth selling them out.


  1. Another excellent posting, DISCDUDE. But then I've come to expect excellent postings from you.

    Adam Maji's remarks seem to come directly from the Henry Hazlitt school of economic theory. And that's a good thing!

    Of course, when it comes to math, I'm sitting at the back of the class, with a Playboy magazine slipped inside the textbook. So, if you've made any mathematical errors, me and Miss August will be the last ones to catch 'em. But your calculations seemed up and up to me.

    The only thing I have to take issue with is THIS:

    >> Now why would such a smart Irish guy like O’Bama do that? <<

    Obama isn't Irish!
    Hell, anyone with a brain knows that Obama was born in Hawaii, and being born in Hawaii, that makes him... Kenyan.

    Good stuffs, Brother!

    ~ D-FensDogg
    'Loyal American Underground'

  2. I was afraid this may be too long and too much math for casual readers....

    And then I remembered that there are no casual readers!

  3. You're on about your politicians you want to have ours(UK)We have just changed governments after a General Election in May and we are worse off now than before.When they want our vote they are desent human beings......after elected well, just lets say a lot needs to be desired.
    I was interested in your post and thought it was excellent.

  4. THanks, Yvonne-

    I think you're right-many of these people seem to enter the world of politica with good intentions, and the machinery seems to just twist them up.

    I am not heartless, either-it's not that I think a lot of these social programs being proposed are bad in principle, and I certainly have nothing against someone wanting to emigrate to the US from any country, but we (US) are simply out of money, and funding these things at the expense of future generations is not a good answer.

    I'm sorry the UK is having similar issues.