Recession Is Over: Long Live Depression 53 comments
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Have you heard the great news? The recession is over! It’s true; I saw it on TV. Why fret about growing unemployment lines when banks are paying big-time bonuses again?
Proof of the turn was apparently revealed by the 2nd quarter GDP figures that showed that the economy declined by only 1%. After four consecutive quarters of negative GDP, the green shoots now assume that growth will resume over the summer. But before we pop the corks, it may be worthwhile to ask, “what really has changed, and what is responsible for our new lease on life?”
In truth, because of the continued profligacy of the government and Federal Reserve, the imbalances that caused the current recession have actually worsened. We are now in an even deeper hole than when the crisis began. Rather than wrapping up a recession, we are actually sinking into a depression. If things look better now, it’s just because we are in the eye of the storm.
We must remember that recessions inevitably follow periods of artificial growth. During these booms, malinvestments are made which ultimately must be liquidated during the ensuing busts. In short, mistakes made during booms are corrected during busts – and in the recent boom we made some real whoppers. We borrowed and spent too much money, bought goods we couldn’t afford, built houses we couldn’t carry, and developed a service sector economy completely dependent on consumer credit and rising asset prices. All the while, we allowed our industrial base to crumble and our infrastructure to decay.
In order to lay the foundation for real and lasting recovery, market forces must be allowed to repair the damage. However, current policy is counterproductive to this end. Trillions in stimulus dollars have kept the party going, but now what? How does deficit spending by the government address the problems that brought about the crash? It doesn’t; it just delays and worsens the hangover – and we have to hope we don’t die of alcohol poisoning.
By interfering with the unpleasant forces of the recession, we simply trade short-term gain for long-term pain. By propping up inefficient companies that should fail, we deprive more effective companies of the capital they need to grow. By holding up over-valued asset prices, we prevent the prudent or less well-off from snatching them up and, in doing so, creating a new price equilibrium based upon reality. By maintaining artificially low interest rates, we discourage the very savings that are so critical to capital formation and future economic growth.
In addition, the false economic signals the Fed sends the market prevent a more efficient re-allocation of resources from taking place and leads to even more bad economic decision being made. By running such huge deficits, we further crowd-out private enterprise by making it harder for businesses to invest or hire.
The recently passed “cash for clunkers” program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy.
The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don’t they realize that is precisely the behavior that got us into this mess?
Think about it this way. If your friend were in trouble because he had too much debt, would you encourage him to take on even more? Wouldn’t a real sign of progress be a reduction of debt, even if he had to cut back on his everyday expenses? What is true for an individual is also true for a collection of individuals, even if they call themselves a ‘government.’
If, as a country, we are even deeper into debt now than we were before, we are worse off. Period. The fact that the additional debt enabled better short-term GDP numbers is a long-term negative.
Since we have learned nothing from past mistakes, we are condemned to repeat them. As if we have not already suffered enough as a consequence of the Bush/Greenspan stimulus, Obama/Bernanke are giving ever larger doses, which will prove lethal to any recovery. The recession is over; long live the depression!
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This article has 53 comments:
Government takes to excessive spending naturally. The captive media makes sure Americans don't focus too much where the spending is going.
When we can't issue trillions in dollar-denominated debt we will lack the flexibility we could have had to soften the blows. We will be looking out of a much deeper hole.
Which means we still have them working for us. They have to put their money buying our debt, and interest rates in the US will continue to be low, and housing prices will go up as a result.
No one knows capitalism like we Americans do. The Chinese know now that the US government is too big to fail, so they have no way out but to keep Uncle Sam propped up. Yup... it's like giving more booze to the alcoholic... more drugs to the drug-addict...
Your take on the "Cash for Clunkers" program is dead-on. Yes, there are benefits to the program: greener highways (though I'm sure by a not statistically significant amount), better revenues for dealerships, owners with a safer and more reliable car, etc. Long term, though, I think you hit the nail on the head with your analysis. We're in trouble and the current administration is fueling the fire.
www.salon.com/opinion/...
www.salon.com/opinion/...
www.salon.com/opinion/.../
www.salon.com/opinion/.../
A WISE OWL KEEPS HIS EYE ON THE DEVIL BUT DOESN'T BLINK! Good Health to everyone (your goining to need it). Bruce, Cultural Anthropologist
Think of all the savings and estate taxes.
The new Science Csar said it best in his book from 20 years ago when he said that we should encourage those over 65 to kill themselves for the good of society.
Everyone should take a moment today to raise their right hand up firm and high and say "hail Obama."
Right now is probably as good as it will get for quite some time. At some point soon we will most likely continue to slide until the weak, poorly managed businesses finally succumb to their inevitable demise because government will have exhausted its ability to bail them out. Then we will experience just how bad things can get. And the whole world will go down there with us. because the world economy is still so very dependent upon the US consumer. Assuming we have another major dip in economic activity, even China and India will feel the force since if they continue to add capacity they will find themselves in over-capcity structures that will require time and world growth to refill. Only after the cleansing can we, as a nation, begin to climb out of this mess and becuase we will be buried in debt, the climb will be harder and slower than ever before.
But remember: even when times are difficult (or maybe especially so) those who make the right moves at the bottom will find great opportunities from within the ashes. Good luck to all!
The toxic combination of compound interest on debt, and private property in land, has once again achieved what it always has for thousands of years - an unsustainable concentration of wealth in the hands of the few, to the exclusion of the many.
If Peter has anything constructive to say about building a sustainable economy without unsustainable disparities of wealth, then I have yet to see it.
We need a market based upon morality all right, but not one which assumes that the essence of morality is pure selfishness.
@Chris Cook: you need to read some more Schiff, if you think he doesn't have ideas on a sustainable economy. First would be the abolition of the Federal Reserve and the breaking up of the banking cartel puppet masters that are ruining our nation; followed by a free market in money and a true gold standard, which would level the playing field and take away the ability of the government to wage incessant wars and create trillion dollar boondoggle programs that are idiotic in conception and disastrous to freedom.
Let's hear some real solutions other than the same old kindergarten class warfare from the Left.
Hilarious! The most radical leftist couldn't come up with better solutions!!
On Aug 02 10:45 AM Glen L. wrote:
> @studiophoto: you need to read some Hazlitt, at the very least.
> The problem with "cash for clunkers", in addition to the ones Peter
> and others here have pointed out, is that the money given to the
> recipients is money stolen from productive Americans, who would otherwise
> save it or use it for business and job creation. Dealers and others
> who see their bottom lines boosted by theft should be ashamed of
> themselves, and look for honest work.
>
> @Chris Cook: you need to read some more Schiff, if you think he
> doesn't have ideas on a sustainable economy. First would be the
> abolition of the Federal Reserve and the breaking up of the banking
> cartel puppet masters that are ruining our nation; followed by a
> free market in money and a true gold standard, which would level
> the playing field and take away the ability of the government to
> wage incessant wars and create trillion dollar boondoggle programs
> that are idiotic in conception and disastrous to freedom.
>
> Let's hear some real solutions other than the same old kindergarten
> class warfare from the Left.
yellowhoard.. Do you mean "hail Obama" or "heil Obama"
On Aug 02 09:40 AM yellowhoard wrote:
>
> Everyone should take a moment today to raise their right hand up
> firm and high and say "hail Obama."
>>...in addition to the ones Peter and others here have pointed out, is that the money given to the recipients is money stolen from productive Americans, who would otherwise save it or use it for business and job creation. <<
"Stolen" from Americans??...lol...Maybe everyone should take up arms to protect themselves against this "theft"?...Oh right, they are.
Watch out for those Black Helicopters.
At best, if any of this money that you believe is being stolen, it's being "stolen" from the Chinese...which is another issue. Last I looked, they're getting paid for the money stolen from them. And, they'll get their money back. And they continue to allow us to steal it from them...along with a number of other countries. Why do you think that is?
I have a feeling you folks don't quite get what would have happened if this administration did not step in during this crisis. It's not hype to say that in all probability, without the huge injections of cash/liquidity across the board, we would have seen people ~~lining up at the front doors of their banks~~ trying to get whatever money they had on deposit. And that would have been only the beginning. Think about that for a second...and what would have followed after you found out you couldn't get your money out of the banks. And do not try and tell anyone that was not a real probability, absent the huge injections of stolen cash.
But, according to you folks, it would have been better to "let these companies" fail because we had to deficit spend to save the system. Right.
I have a feeling that while you guys were lining up outside of JPMorgan's door to ~~try~~ and get your hands on your hard earned, life savings, you wouldn't have been espousing this 'survival of the fittest' routine. Especially when you were jobless...Master's degree or not.
Be thankful all your/our jobs were saved because we did NOT make the myriad of mistakes that were made that caused the Depression. Take heart that this administration, and the people who are over seeing the unwinding of the 'no regulation, free market' dogma of the previous self serving administration, are not ideologues but pragmatists and that they understand the difference between free markets and gaming the system.
- cash for clunkers” program …is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones…
- If your friend were in trouble because he had too much debt, would you encourage him to take on even more? (alcohol is not the answer to alcoholism).
The nation has to change its economic principle – we have to get away from Bubbles R US and bailouts R US – simply replacing one bubble-burst with next bubble – the Greenspan principle. We have to get back to a nation that produces stuff – not silly paper shuffling ‘services’. Our nation became great because we save and invested and produced. Now we simply borrow and consume. We claim to be the richest nation in the world but actually we are the poorest – as measured by per capita debt national debt– much higher than anyone else in the world.
All the bailouts and stimulus have failed – after Trillions of dollars wasted – ongoing job losses and home price falls – it just has brought more debt. The nation has sold its soul to the crooks on Wall Street – that must be undone – else there is no hope. If Goldman’s profits are a measure of success rather than job losses and foreclosures – we are heading towards civil/class war.
Yes the recession is over; long live the Depression!
You illustrate the thinking that got us into this mess.
Taxing me to pay for someone else's purchase of a car or house is unethical to begin with, and puts the government (people) into debt for a short term fix.
Whether you believe in global warming or not, we aren't going to save the planet with 22,000 or 250,000 cars traded in that would have been traded in anyway. Besides, don't those old cars have to go to the junkyard and have their fluids dumped? Hmmmm...
Debt is debt. Production is production. If I rob someone to buy a bottle of booze for the local drunk I'm not helping either person.
On Aug 02 09:18 AM studiophototrope wrote:
> >> The recently passed “cash for clunkers” program (currently on-hold,
> as it ran out of funding in one week) is a perfect example of how
> government policy can make the economy worse. By incentivizing Americans
> to destroy fully paid-for cars so they can go deeper into debt buying
> brand new ones, the government weakens an already crippled economy.
> <<
>
> Since it's the 'perfect example', let's use it.
> When you incentivize the car owning public to trade in inefficient
> fuel vehicles, you *begin* the much needed work on oil dependency,
> emission problems, and current/future climate concerns. Beyond those
> important issues, which not only have been ignored for decades but
> have actually been encouraged, we've given the auto industry an opportunity,
> with bailout funds, no doubt, to restructure AND re-examine and recreate
> their basic business model. Not too bad of an idea.
> Beyond that, the US private sector SAVINGS rate is approaching all
> time highs. The general public, those who have managed to hold on
> to jobs, have used this environment to build up a financial cushion.
>
> Given the concerns of the Banking/lending industry, those who are
> able to take advantage of the clunkers program [and be assured that
> there are a lot of people who can't take advantage currently] are
> 1- people who have to have jobs, 2- people who are getting new, emission
> improved vehicles at huge discounts, 3- people who are paying far
> less in interest on the the lower price for those vehicles, 4- keeping
> the auto industry and their worker's productive and generating revenue
> and income, 5- creating the environment, where, if these new vehicles
> do NOT meet the standards expected of the public who are buying them,
> it will allow for the very auto companies that you believe should
> fail, to do exactly that.
> I would think the clunkers program would make you happy! What was
> I thinking??
Let me know if I can email you my home address so you can send a check.
On Aug 02 10:03 AM Chris Cook wrote:
> Austrian analysis of debt-based economies is correct up to a point,
> - and demonstrably superior to the conventional nonsense - but it
> is essentially destructive.
>
> The toxic combination of compound interest on debt, and private property
> in land, has once again achieved what it always has for thousands
> of years - an unsustainable concentration of wealth in the hands
> of the few, to the exclusion of the many.
>
> If Peter has anything constructive to say about building a sustainable
> economy without unsustainable disparities of wealth, then I have
> yet to see it.
>
> We need a market based upon morality all right, but not one which
> assumes that the essence of morality is pure selfishness.
There is NO difference in economic policies between Bush and Obama since the key to both administrations economic policy is to protect the Wall Street economic elite at the expense of everyone else in the country.
On Aug 02 11:32 AM studiophototrope wrote:
> Glen L
you say that, in general, it would be dumb to take on more debt generally but, if you believe in the business model, additional debt could be a positive in terms of restructuring. My question to the US government is what is the plan for restructuring, then ? I think Schiff would argue that it's just "more of the same". We have no exit. The government seems hell bent on just propping up our consumer based economy. If you have a business model that is failing, and you borrow money to keep it going, why would you just do more of the same ??? We need a viable and sustainable economy that creates GOODS the world needs and will consume. We cannot simply have a service based economy built on unsound fundamentals. All the phony jobs created building and managing "wealth" are gone - they are NOT coming back. What is the plan for creating real sustainable JOBS ? That is the key for any real recovery.
On Aug 02 09:18 AM studiophototrope wrote:
> >> The recently passed “cash for clunkers” program (currently on-hold,
> as it ran out of funding in one week) is a perfect example of how
> government policy can make the economy worse. By incentivizing Americans
> to destroy fully paid-for cars so they can go deeper into debt buying
> brand new ones, the government weakens an already crippled economy.
> <<
>
> Since it's the 'perfect example', let's use it.
> When you incentivize the car owning public to trade in inefficient
> fuel vehicles, you *begin* the much needed work on oil dependency,
> emission problems, and current/future climate concerns. Beyond those
> important issues, which not only have been ignored for decades but
> have actually been encouraged, we've given the auto industry an opportunity,
> with bailout funds, no doubt, to restructure AND re-examine and recreate
> their basic business model. Not too bad of an idea.
> Beyond that, the US private sector SAVINGS rate is approaching all
> time highs. The general public, those who have managed to hold on
> to jobs, have used this environment to build up a financial cushion.
>
> Given the concerns of the Banking/lending industry, those who are
> able to take advantage of the clunkers program [and be assured that
> there are a lot of people who can't take advantage currently] are
> 1- people who have to have jobs, 2- people who are getting new, emission
> improved vehicles at huge discounts, 3- people who are paying far
> less in interest on the the lower price for those vehicles, 4- keeping
> the auto industry and their worker's productive and generating revenue
> and income, 5- creating the environment, where, if these new vehicles
> do NOT meet the standards expected of the public who are buying them,
> it will allow for the very auto companies that you believe should
> fail, to do exactly that.
> I would think the clunkers program would make you happy! What was
> I thinking??
On Aug 02 01:28 PM Tony Daltorio wrote:
> You political wackos kill me. Do you understand both political parties
> - left and right, Dems and Reps, have been bought and paid for by
> Wall Street?
>
> There is NO difference in economic policies between Bush and Obama
> since the key to both administrations economic policy is to protect
> the Wall Street economic elite at the expense of everyone else in
> the country.
They attempt to talk over and around you but you are able to get your point across to all of us who pay attention. Thank you for fighting the fight and it’s really sad that opposing points of view such as yours even need to be a “fight” in the first place.
On Aug 02 03:16 AM Marco Hickey wrote:
> Great article. These are my thoughts exactly... Can you really cure
> a hangover with another drink?
Studio, yes it *is* theft from the productive sectors, and you're also assuming that those "with eyes" left their resources in the banks. I deeply resent paying for my neighbors' house, car, and substandard government-administered health care. I disagree with the notion that the government - or anyone else - owes me a living (go ask some livestock what the end game is). As was pointed out earlier, though, there is no "bastille to storm", leaving me with a sense of frustrated and impotent anger. Wonder how long before that becomes the pervasive mainstream feeling.
This really is not a study in whether the Republicans or Democrats are right (they are bank-owned subsidiaries lock/stock/barrel - although I've got a serious bone to pick with the notion of Socialism/Collectivism, which seems to be a more Democrat theme). I'd prefer to focus on what the heck I can do about it on an individual level. Anyone?
What we got instead is the beginning of a another lost decade which will end with....a bunch of bank failures, most businesses will fail, almost all individuals will be wiped out, and there will be likely be violence and blood in the streets.
I'd wish the worst were past now, with the S&P where it belongs at 300, the equity holders in all these banks wiped out and real estate at half the value it's trading at...where it belongs.
But they chose to reinflate the bubbles. Oh what we have to look forward to.
On Aug 02 11:32 AM studiophototrope wrote:
> Glen L
You all seem to forget most of the bailout was done by Bush, not Obama who has had to come in and clean up the mess Bush, Repubs made from their energy, war, tax and lax regulation policies.
It happen over 8 yrs of debt by repubs who started with a $250B surplus and left $8T in more debt, energy dependent on OPEC, Russia, oil dictators and millions unemployed. Or did you forget that? Great going guys!!
On Aug 02 08:01 PM jerrydd wrote:
>
> You all seem to forget most of the bailout was done by Bush, not
> Obama who has had to come in and clean up the mess Bush, Repubs made
> from their energy, war, tax and lax regulation policies.
>
> It happen over 8 yrs of debt by repubs who started with a $250B surplus
> and left $8T in more debt, energy dependent on OPEC, Russia, oil
> dictators and millions unemployed. Or did you forget that? Great
> going guys!!
What's negative about the C.A.R.S. program is that the organizational effort and BTUs that were involved in the production of those vehicles being destroyed will be gone forever, the product of a few million barrels of oil that is non-renewable. THAT is the travesty here.
This is a harbinger of things to come. Lawyers that have no business sense can only do harm.
What happened to the American spirit?
What happened to American being the " righteous Captain America"?
I went to both high school and college in the US and went to American school in Hong Kong. I can tell you one thing: what you just wrote is certainly "Un-american" and it does not represent the majority of the American public. Shame on you. If your ethnic level is as such, I pray to God to bless your children to not learn your ways.
On Aug 02 06:55 AM WorkerOnWallStreet wrote:
> We really got the Chinese,didn't we! They can't do diddly with their
> dollar holdings... So what are they going to do with it all? Buy
> DVD players and LCD TVs? Ha! If they try to reduce the dollar holdings,
> they will destroy themselves. They have NO place to put their money,
> except in US govt debt which is "backed by the full faith..." Double
> ha! And will we allow them to buy any of our assets we consider important
> to national security? No way!! Triple ha ha ha!!!
>
> Which means we still have them working for us. They have to put their
> money buying our debt, and interest rates in the US will continue
> to be low, and housing prices will go up as a result.
>
> No one knows capitalism like we Americans do. The Chinese know now
> that the US government is too big to fail, so they have no way out
> but to keep Uncle Sam propped up. Yup... it's like giving more booze
> to the alcoholic... more drugs to the drug-addict...
> You political wackos kill me. Do you understand both political parties
> - left and right, Dems and Reps, have been bought and paid for by
> Wall Street?
>
> There is NO difference in economic policies between Bush and Obama
> since the key to both administrations economic policy is to protect
> the Wall Street economic elite at the expense of everyone else in
> the country.
AMEN !!!
Those who put their "Faith" in the "Perception Of Labels" are easily deceived.
Action And Event Are The Only Measure OF True Intent.
With all due respect, I believe it was written tongue-in-cheek. Quite funny really.
I chuckled because it reminded me of a similar bit Schiff had on paying back the Chinese in a speech earlier this year (Ref timestamp from 39:59 to 42:59),
blog.mises.org/archive...
Just American humor, Wilson. Don't take it seriously.
On Aug 03 12:39 PM Wilson Siu wrote:
> What you are saying is that because "some of the American Leaders
> have been able to trick China into this scam" , it shows how smart
> they are.
>
> What happened to the American spirit?
> What happened to American being the " righteous Captain America"?
>
>
> I went to both high school and college in the US and went to American
> school in Hong Kong. I can tell you one thing: what you just wrote
> is certainly "Un-american" and it does not represent the majority
> of the American public. Shame on you. If your ethnic level is as
> such, I pray to God to bless your children to not learn your ways.
>
I am shorting everything USA and I plan on winning big. I want the morons currently in power to remain as they are very easy to predict and profit from.
I depend on D.C. incompetance to boost my ROI.
On Aug 04 01:04 PM Hot Richard wrote:
> I strongly encourage Americans to vote in every current member of
> Congress and Obama. They need to remain in power to fully embrace
> socialized everything and run the debt (and taxes) up to infinity
> and beyond.
>
> I am shorting everything USA and I plan on winning big. I want the
> morons currently in power to remain as they are very easy to predict
> and profit from.
okay even if what u say about bank runs is true, so what do u say to the government bailing out the car makers now (at the expense of the taxpayers AND the bond holders)?
why punish the bond holders who should have first legal claim on the car companies' assets?
and what do u say to using taxpayers' money for the cash for clunkers? surely, the car companies problems are not as serious as bank runs, right?
and why let the bankers get away scot free? this is not about punishment or even moral hazard (which IS actually very important for capitalism to work - incidentally u don't hear the word 'moral hazard' anymore!). why didn't they nationalize the banks when they for all intent and purposes already injected more capital into the banks than any other investor? if u own majority share of a company, u OWN and CONTROL the company.
don't you think they are going overboard?
ok, maybe they did what they needed to do to prevent the bank runs --- but they didn't know when to stop.
On Aug 02 11:32 AM studiophototrope wrote:
<< I have a feeling you folks don't quite get what would have happened if this administration did not step in during this crisis. It's not hype to say that in all probability, without the huge injections of cash/liquidity across the board, we would have seen people ~~lining up at the front doors of their banks~~ trying to get whatever money they had on deposit...I have a feeling that while you guys were lining up outside of JPMorgan's door to ~~try~~ and get your hands on your hard earned, life savings, you wouldn't have been espousing this 'survival of the fittest' routine. Especially when you were jobless...Master's degree or not.
Be thankful all your/our jobs were saved because we did NOT make the myriad of mistakes that were made that caused the Depression. Take heart that this administration, and the people who are over seeing the unwinding of the 'no regulation, free market' dogma of the previous self serving administration, are not ideologues but pragmatists and that they understand the difference between free markets and gaming the system. >>
This is clear thinking. The problem with the Consumption Business Model is that, like cancer, it needs to keep gobbling up resources, even when they are not needed. Now the democrats are getting on board for more money for this program, because it makes the charts look like there is a recovery in the auto industry. This is an illusion of course. The recovery is being funded by the government -- like what happened recently in China. But this is merely a transfer of debt -- more for the taxpayer, less, perhaps, for the car buyer. If they owned their clunker and traded it in on a new car with a rebate paid by the taxpayer then they are more deeply in debt -- but they do have a new car, which may or may not be a better product than their clunker.
I'm hoping that his 'cash for clunkers' program applied only to American-made cars. Did it? If not, why not? We have no obligation to save the Jjapanese, South Korean, German or Swedish car industries.
Mr. Schiff, it is equally faulty to say that government intervention can solve all our current economic issues as it is to say that letting the free market run its course is the best solution. You are blindly dismissing the accountability needed to be faced by Wall Street for the easy assignment of blame on the inefficiencies of government.
Your ideas and insights would be much better received and could do much more to end the suffering of average Americans if you toned down your free market rhetoric. I really believe you could to a lot of good if you exercised a little more diplomacy and tried to better develop your ideas to solve our problems. They are not thoroughly thought out. They're sound bites, sorry to say.
Americans should consume less. I agree. But in doing so, businesses will need to contract, more jobs will be lost, more homes will be foreclosed, etc. Less consumption is a good start and we see signs of that already. But, the problem government faces is "how do we stimulate the economy?" Another way to say this is, "What can we invest in that needs solving to better allocate our unemployed workforce?" It appears that energy and healthcare would be clear options.
I do not rubberstamp everything I hear from the current administration, but I see why they are trying to tackle these issues. Do you?
From your book Crash Proof, you make an excellent point about how the current tax code promotes bad decisions. For example, you point out that the current tax code incentivizes debt in the form of mortgage interest deduction and negatively rewards savings in the form of interest taxation. Great points!! But what do you suggest we should do about it?
www.schiffforsenate.com
Yes it will be difficult for one man to change Washington, but if he wins at least it will be entertaining as hell to watch.
The assertion is that people are being financially reckless making a typical cash for clunkers trade.
Lets say I own an old car that is worth $5K and is likely to need $2k in repairs in the next 3 years, I do 10,000 miles/year and it does 20mpg. At $3/gallon that is $4.5K. Let's say this car would be worth $2K in 3 years.
Let's say I replace it with a $15K car which I paid $13K for and it does 30mpg or $3K. Let's say the car is worth $7K in 3 years and has no repairs.
My cost of ownership of the old car is $9.5K.
My cost of ownership of the new car is $9K.
From a cash flow perspective I think I am ahead, or about even if I finance it.
Why is this so bad?
That coercive power of taxation is being abused when, through the government, I have to help pay for someone elses' "good deal". That is wrong.