The economic illiterates in Washington are so impressed with the “success” of Cash for Clunkers that they’re readying Cash for Clunker Appliances. The ludicrous “stimulus” bill gave $300 million to the Department of Energy to provide rebates for 10 types of appliances that have been rated energy efficient.

Before government extends Cash for Clunkers to more products, it might be a good idea to examine the original. The fact that Washington and the buyers who took advantage of Cash for Clunkers are gaga is hardly evidence that it was in the public interest.

It wasn’t. As usual, the program has been judged only by its first and most visible consequences, violating Henry Hazlitt’steaching in his classic, “Economics in One Lesson”:

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

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In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises.

It added that the present system, under which the dollar acts as the world’s reserve currency , should be subject to a wholesale reconsideration.

Although a number of countries, including China and Russia, have suggested replacing the dollar as the world’s reserve currency, the UNCTAD report is the first time a major multinational institution has posited such a suggestion.

In essence, the report calls for a new Bretton Woods-style system of managed international exchange rates, meaning central banks would be forced to intervene and either support or push down their currencies depending on how the rest of the world economy is behaving.

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Editor’s note: This just appears to be a larger, more controlled version of what already exists. Any currency that is not back by a commodity is subject to manipulation for the benefit of the issuing institution. It is interesting that the UN is taking a position on this topic, which is a strong signal that the dollar is headed for further crises.

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Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”.

“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

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By Jeannine Aversa, AP Economics Writer

Federal Reserve Chairman Ben Bernanke declared Friday that the U.S. economy is on the verge of a long-awaited recovery after enduring a brutal recession and the worst financial crisis since the Great Depression.

Economic activity in both the U.S. and around the world appears to be “leveling out,” and “the prospects for a return to growth in the near term appear good,” Bernanke said in a speech at an annual Fed conference in Jackson Hole, Wyo.

The upbeat assessment was consistent with the Fed’s observations earlier this month. The central bank has taken small steps toward pulling back some emergency programs to revive the economy.

Still, Bernanke stressed Friday that despite much progress in stabilizing financial markets and trying to bust through credit clogs, consumers and businesses are still having trouble getting loans. The situation is not back to normal, he said.

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China holds more US government debt than any other country and cut its holdings of US securities by more that 3% in June, said the BBC’s Chris Hogg.

Japan and the UK – second and third largest holders of US debt – increased their holdings over the same period.

China’s holding of US debt is about 7% higher than at the turn of the year.

Inflation fear

In recent months the US government’s budget deficit has widened thanks in part to the Obama administration’s costly stimulus plan.

Our correspondent in Shanghai says that China is worried about this, and fears the stimulus efforts will fuel inflation in the US, reducing the value of the dollar.

This would then erode the value of the debt China holds in the US currency.

In June, China cut its holdings of US securities by about $25bn, a fall of 3.1%.

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“As is the typical pattern in recessions, overall state and local government employment continued to grow after the start of the recession, although there has been a small decline since the August 2008 peak,” said Donald J. Boyd, author of the report by the Rockefeller Institute of Government, in a statement.

Total employment in state and local government rose in 30 states, fell in 16 and was unchanged in four during the last year, the report found.

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The stock market has risen by 50% this yearThat doesn’t mean we’ve hit the bottom, but that is only one of many factors. The question that must be asked is “what has changed that would lead to a recovery?”

“Data provided by credit reporting agency TransUnion shows the ratio of mortgage holders who are 60 days or more behind on their payments increased for the 10th straight quarter, to 5.81 percent nationwide for the three months ended June 30.”

The situation for homeowners hasn’t improved

“Regulators on Friday shut down Colonial BancGroup Inc., a big lender in real estate development that marked the biggest U.S. bank failure this year, and a small bank in Pennsylvania.”

Banks are still failing

“The American economy lost 467,000 more jobs in June, and the unemployment rate edged up to 9.5 percent in a sobering indication that the longest recession since the 1930s had yet to release its hold.”

Jobs are still being lost

There has been no significant improvement of economic conditions. Every government interference in the marketplace, even if it appears to help in the short-term, creates distortions that can only be maintained temporarily. Eventually the distortion must be wiped away by a correction that reallocates the resources away from politically directed ends into market directed ends. This takes time. The larger the distortion the bigger and more painful the correction.

The recovery will come once business has restructured away from politically motivated directions, back to satisfying the needs of consumers. Any further interference by Washington DC only lengthens the duration of the current correction.

Writing in The State and Revolution in 1917, Vladimir Lenin summed up the economic aim of socialism as follows: “To organize the whole economy on the lines of the postal service….”

Incredible, isn’t it? After centuries of treatises and miles of paper and tubs of ink, this is the great historical turning point: government employees carrying sacks of paper mail from house to house, and operating at an economic loss.

It’s fascinating how it all comes down to the post office, again and again in the history of public policy. And so it is in our time, with Obama’s admission/gaffe/slip concerning the post office and its analogy to what he wants to do with health care.

Here is a transcript of his spontaneous talk at a high school. A student raised a question about the government’s provision of health services and its impact on private services.

“How can a private company compete against the government? My answer is that if the private insurance companies are providing a good bargain, and if the public option has to be self-sustaining, meaning that taxpayers aren’t subsidizing it, but it has to run on charging premiums and providing good services, and a good network of doctors, just like private insurers do, then I think private insurers should be able to compete.

“They do it all the time. If you think about it, UPS and Fed-Ex are doing just fine. It’s the Post Office that’s always having problems…. there is nothing inevitable about this somehow destroying the private marketplace. As long as it is not set up where the government is being subsidized by the taxpayers so that even if they are providing a good deal, we keep having to pony up more and more money.”

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