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Do we really think that the government that couldn't manage Cash for Clunkers - a multi-billion dollar program can "manage" the nation's health care system, representing 17% or so of the economy?

Do we believe that our government can control the climate of the planet with Cap & Trade? Our government will "manage" the entire energy market through an artificial Cap & Trade market on top of our existing market?

We may not like our current economic and energy situations, but we got here largely through government interference in the market. Government can do little good and much harm. Government is not an innovator. It is not a creator of value. Individual ingenuity resulted in human flight, the automobile, the incandescent light bulb, and more.

The march of human progress has followed the drumbeat of individuals with free societies - not central government planning. This truth hasn't changed despite what those who feed from the public trough would have you believe.

Many in the Main Stream Media (MSM) – including the financial media – have been promising, Santa Claus-like, a holly jolly Christmas. They predict that in the third or fourth quarter of this year, there will be an economic recovery, and the end to our long recession. Sorry to be the “Grinch That Stole Christmas”, or better yet – the Anti-Claus – but there are three reasons we may all be getting a stocking full of coal instead of the long awaited recovery this holiday. Three pillars of the government’s stimulus package (You remember? The stimulus package voters overwhelmingly urged Congress not to pass!) – Cash for Clunkers (Or was that cash for unions?) the $8,000.00 first time home buyer tax credit (aka Housing Bubble, Part Deux), and the Federal Reserve’s (or FED, as in “Have you fed your government pig lately?”) debt monetization (aka we owe, we owe, it’s off to print more money we go) are all nearing an end, and the ineffective, temporary nature of these programs will ensure that the only economic turnaround will be a u-turn back into economic crisis.

Cash for Clunkers, the up to $4,500.00 rebate, designed to stimulate auto sales, is about to become a hoopty (that broken down piece of junk car by the side of the road) when it expires Monday, August 24th. Apart from poor administration, which left car dealers waiting for hundreds of thousands of dollars in past due payments from the government (When did our government become Wimpy from Popeye? “I’ll gladly pay you Tuesday for a cheeseburger today.”), Cash for Clunkers has only “succeeded” in pulling sales demand forward – that is to say encouraging marginal buyers, and those who would have purchased in the future, to purchase now. Cash for Clunkers has distorted the market and created concentric circles of unintended consequences, including but not limited to:

• Destroying serviceable used vehicles directly harming used car dealers
• Denying persons unable to purchase a new car, a larger pool of used cars, therefore inflating prices
• Removing used car parts from the salvage market (Cars traded under Cash for Clunkers are destroyed. That’s nice. Very environmentally friendly I’m sure.) – hurting small business, increasing salvage part prices, and making it more expensive for those earning less to afford replacement auto parts
• Fewer opportunities for auto mechanics to maintain used cars, since a large supply is being destroyed and removed from the market

Cash for Clunkers encourages car consumption over savings, or other purchases, and rewards groups favored by the current administration in Washington (unions, auto companies, and environmental interest groups). It encourages spending at a time when consumers are seriously overextended, need to increase their savings and pay down debt. It also delays the day of reckoning for auto companies to realign their production with real (non-stimulus based) demand for their product. Expect the brakes to slam on auto sales once Clunkers clunks out.

Shifting gears, the $8,000.00 first time buyer home tax credit, which has boosted home sales as of late, is set to expire November 30th. In reality, if a home sale contract isn’t signed by the end of September – taking into account it will take approximately two month to close – it is unlikely the buyer will complete the purchase in time to qualify for the credit. While the home tax credit may have created the illusion of a housing bottom, it is still a question mark whether a market bottom has been reached or not.

The home tax credit, like all government intervention in the economy, distorts the market. It has put an artificial floor under prices – particularly at the low end of the housing market. This, on its face, seems good for home sellers, but is not good for home buyers, who – if prices were lower – could purchase a home and possibly have money left over for home improvements, other consumption or savings. Once this tax credit expires, expect home sales to slow dramatically and prices to continue their trend back toward their historical norms. This is part of a healthy process of unwinding the housing bubble and returning our economy to a more sound footing. Ironically, the current political administration in Washington, along with many members of Congress have been creating programs to discourage lower home prices, despite the fact that these would make housing more affordable for many who cannot afford a house at current levels.

Finally, the third pillar of the government’s efforts to stimulate the economy has been the Federal Reserve (FED). It has been attempting to prop up the economy by monetizing the debt. It’s an idea only a central banker could love. The FED prints money to buy our government’s IOUs – maybe we should change it from IOU to WOU (we owe us). Anyhow, all of this smoke and mirrors is an effort to manipulate Treasury bond yields and hold down interest rates. In theory, this will encourage consumers to continue purchasing homes, keep charging purchases to credit cards, and allow businesses to take out bank loans. It is not certain that debt monetization works, and it will likely lead to inflation at some point in the future. In October, the farce of the government buying its own debt will end, and like a game of musical chairs, someone is going to be left standing holding the bag – that someone is you. When this happens, interest rates will go back up – discouraging consumer spending on houses, retail items, automobiles, and making it more difficult for small businesses to receive loans which would allow them to expand operations, hire employees, etc. This will be bad, bad, and bad for the economy.

Like I said, sorry to be the Grinch, or the Anti-Claus, but it looks like Cash for Clunkers, the expiration of the first time home buyer tax credit, and the end of debt monetization will leave you with a lump of coal in your stocking this Christmas. There may be holly this holiday, but jolly – not so much.