The former head of the Federal Reserve gave a thumbs-up to the cash for clunkers program but said Sunday it is popular only because the economy was on its way back up and not because it was stimulative. Alan Greenspan said that the program has worked to get people to buy cars and move stock, but he wouldn't necessarily recommend it as an economic fix. "It's an interesting issue. I mean, I have qualms about the concept, but there is no doubt that that very extraordinary response is a very important indicator that the state of confidence in the economy is beginning to pick up. If we had been — the clunker program had been put in place six months ago, it would have probably been a dud," Greenspan said on ABC's "This Week." "Cash for clunkers" is a short-term government spending program that designated $1 billion to pay consumers up to $4,500 for trade-ins of old cars in exchange for energy efficient vehicles. – Fox News
Dominant Social Theme: The economy has turned the corner.
Free-Market Analysis: This is what we're talkin' about! In order to stimulate the economy, central banks have given trillions to money center banks that are then supposed to lend out the money to businesses that will expand, thus providing additional jobs and salaries to workers who will then spend the money within the economy, eventually furnishing the tide that will lift all boats. What a mouthful …
Anyway, this modest publication has been on record as pointing out that this is a truly odd way of stimulating a fiat-money economy. If the goal is to get money into the hands of citizens for purposes of spending, then cut taxes as rapidly and deeply as possible. But this is not the way it has been done because the monetary elite that organizes such bailouts is reluctant to put too much money in the hands of individual entrepreneurs. They are much more comfortable working with large banks and financial institutions, in our opinion.
We've floated this explanation but we didn't expect to find a confirmation of it so quickly and obviously. But we believe that Alan Greenspan has validated our point of view fairly strongly. Here's some more from the article excerpted above.
Money for the program ran out months earlier than had been expected, forcing the House on Friday to vote for an additional $2 billion. The Senate has yet to take up the additional funding request. Obama's backers say the program is proof that the president's economic plan was correct. "The so-called cash for clunkers program has actually been far more successful than people expected, both in terms of the number of car sales it's generated, and, I should say, in terms of the environmental benefit," said National Economic Council President Larry Summers, appearing on CBS' "Meet the Press."
Maybe it's just us, but Larry Summers sounds fairly patronizing when he speaks of the program being "far more successful than people expected." The numbers are not analogous either as the Federal Reserve is said to have given out up to US$8 TRILLION to financial institutions at home and abroad. The cash for clunkers program may top out at US$2 or $3 billion.
And why should that be? Because as can be inferred from the quotes above, central bankers are loath to give out paper money directly to individual citizens. Heaven forbid that the faux economy could be "stimulated" better by paper money handouts to individuals than to banks. What would central bankers do? They would have to chuck a whole boatload of arcane financial vocabulary – sterilization, nominal rates, super-money, etc. The mystique would take a hit as well. No one wants to sit around expensive, big tables discussing cash for clunkers. It doesn't even sound businesslike, let alone intricate.
Why would Alan Greenspan have "qualms" about cash for clunkers? What's a billion dollars these days, after all? We would suggest that Greenspan is probably concerned that people will get the idea that you can stimulate an economy this way. Notice how he goes out of his way to say, according to the article, that, "It is popular only because the economy was on its way back up and not because it was stimulative. … The program has worked to get people to buy cars and move stock, but [not as] an economic fix."
Of course, there are other problems with the cash for clunkers program. As has been pointed out, if you log onto the computer system provided, it makes the claim that the government considers your computer its own application, as follows:
This application provides access to the DoT CARS system. When logged on to the CARS system, your computer is considered a Federal computer system and is the property of the U.S. Government. Any or all uses of this system and all files on this system may be intercepted, monitored, recorded, copied, audited, inspected, and disclosed to authorized CARS, Dot, and law enforcement personnel, as well as authorized officials of other agencies, both domestic and foreign.
We are losing track of all the conversational bright lines when it comes to this latest financial crisis. One gives up one's privacy eternally by logging onto the system. And, within the larger picture, one cannot endorse programs that put cash directly in the hands of the "little people." Certainly one cannot discuss, in mainstream publications, anyway, the possibility of resuscitating a gold standard let alone a market-based gold and silver standard. Yet we are not discouraged. The Internet is a most powerful communications tool. Wait awhile.