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Congress seems determined to waste as much money as possible. Here they detail their continued funding of the clunkers trade in.

Rhodytrader has a take on this program. Essentially the government is providing a subsidy to the carmakers of $4,500/per car of taxpayer money. This further drives the deficit.

Driving the deficit via subsidy, actuates a credit creation injection at the consumer durable goods stage. The American carmakers, having just exited Chapter 11 bankruptcy, having laid off workers, closed plant, closed dealerships, placed supply chains in disarray, are not in the position to supply the increased demand.

Enter the Japanese, who are sitting on inventory [just as well] that can probably absorb the demand, if not, prices rise, distorting the profit margins that drive the correct allocation of capital.

Do Congress intentionally want to subsidise the Japanese carmakers? Probably not, with all the protectionist talk out of Congress, they may have overlooked this minor point.

Either way, the credit creation, simply [at the expense of taxpayers] distorts the price signal, driving potentially further malinvestments that will need to unwind at some point, plus of course adding to the debt load.

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