The Clunker jump starts the Economy

Supply and Demand is an economic model based on price, utility and quantity in a competitive market which results in economic equilibrium. One of the consequences of the Great Recession of 2008-2009 is zero demand by consumers for automobiles and other tangible goods.

The U.S. government recently launched a new program called CARS (Car Allowance Rebate System) wherein the consumer receives a credit of $3,500 or $4,500 at the time of purchase of a new energy efficient vehicle for their 'clunker'. Qualified purchases must take place between July 1, 2009 and November 1, 2009. The original law called for the program to halt when $1 Billion of rebates was awarded to consumers. Due to overwhelming demand, the program will be funded with an additional $2 Billion for purchases by November 1, 2009. Cash for Clunkers has been an amazing success in Germany where up to $7 Billion has been given back to consumers. Similar programs are being approved in France and the U.K.

The programs have boosted automobile sales, saved factory jobs and got rid of 'clunker' cars which helps the environment. We can expect automobile production for the next few months to ramp up and produce profits for the industry. The $3 Billion cost is a hefty price to pay, but it directly creates demand for automobiles and will help to jump start the economy.

Random thoughts.... The stock markets performance in July shattered records as the professionals were starting to buy....there is still $trillions sitting on the sidelines getting 'zero' income in money market accounts....the residential real estate market will start to tick up in the next few months....look for pent-up demand to drive sales in every sector of the economy...

Fifty Days that may change the world

In a year when so many baby boomers are approaching FIFTY years old, it is the next FIFTY days of President Obama's administration that will make or break the back of the 'Great Recession' of 2008-2009. The President has realized that leadership and a positive attitude are important ingredients for success in dealing with the economy.

The politicians are beginning to understand and deal with some of the basic issues that have sabotaged the economy. We can expect the so called 'uptick rule' to be reinstated within a few weeks. This will make it more difficult for short sellers to drive down the price of stocks. I also expect a revision in the 'mark to market' rules that will add some flexibility in dealing with the write downs of bank assets. The fiscal and monetary stimulus that were instituted in the last six months will begin showing some progress.

The most important policy decision of the Treasury will be the plan for dealing with the 'toxic assets' that are on the balance sheets of most banks. These policies must be viewed positively by Wall Street so that we can begin the process of healing our banking system. I expect the President and his staff to spend as much time as necessary in the next few weeks to make sure that the plan will work. Hopefully, the next FIFTY days will put a smile on all of us as we head to the stores to start spending money again.

Random thoughts.....I think it is time for the press and the politicians to stop worrying about the bonuses that everyone is getting on Wall Street...it is time to calm down and start spending some money....