How could that be?

We’re in the middle of a recession that drove General Motors and Chrysler into bankruptcy and caused new car and truck sales to plunge from about 17 million a year to fewer than 10 million.

Yet buyers are paying very close to sticker price for many new models, and used car prices and 9% higher than they were last summer.

For new cars and trucks, the problem is supply.

When the recession whacked sales, dealers dramatically reduced the number of cars and trucks they ordered, and the car companies closed their assembly plants for weeks at a time.

By July 1, Automotive News said the inventory of new cars and trucks was already one-third lower than it was this time last year.

Then along came “Cash for Clunkers,” the government program that pays up to $4,500 for older, fuel-thirsty vehicles that are traded in for newer, more fuel-efficient cars and trucks.

It was wildly successful, resulting in 250,000 purchases in just one week. One Illinois dealer told us he’d been open until midnight every day just to keep up with the demand the clunker program created.

July was the best month for car sales this year and Congress has extended the clunker program through Labor Day.

As a result, most dealerships have acres of empty lots and no reason to dicker over the few models left in their depleted inventory.

You’ll also find fewer, and less lucrative rebates, are available as well.

Inventories are so low that Chrysler, which had a huge backlog of unsold cars and trucks this past winter, is actually reducing its rebates and cut-rate financing on several models.

Although Automotive News reports that automakers are ramping up production to replenish the supply, the extension of Cash for Clunkers will have them playing catch-up at least well into the fall.

The story is much the same for used cars.

Automotive News says used-car prices were 9% higher in June, over June 2008.

The dramatic decline in new car sales means fewer trade-ins are finding their way into the system and rental car companies are also keeping vehicles longer, further reducing the number of low-mileage, late-model used cars and trucks that most used car shoppers want.

They point an accusing finger and proclaim the $750 billion economic stimulus spending plan President Obama and the Democratic Congress approved last winter is a total failure.

But can we really say that — or more importantly, know that — after only a few months?

No.

Let’s put aside the considerable hypocrisy in these attacks.

If the Obama haters had their way, the government would have stood aside and let market forces try to pull the economy out of the worst financial crisis since the ’30s. Unemployment would have been no better — and probably worse — than it is today.

It’s simply too early for any rational, fact-based analysis.

There are some good reasons to wonder how effective the stimulus will be. Liberal economists, for example, have repeatedly said it isn’t big enough for the size of the crisis.

Thomas Mann, a senior fellow at the Brookings Institution in Washington, summed up this “ridiculous” rush to judgment better than I possibly can.

Here’s what he wrote recently on Politico:

Let’s get a grip on reality. We are mired in the deepest global economic downturn since the Great Depression. Extraordinary steps taken by the United States (starting at the end of the Bush administration with TARP and extended under Obama) and other countries appear to have averted a complete financial meltdown. Fiscal stimulus plans put in place by governments around the world also seem to have warded off a downward cycle of deflation and depression. Having avoided these twin disasters, the U.S. and global economy nonetheless are a long way from unwinding the housing bubble, highly leveraged financial positions, and huge global imbalances. As a trailing indicator, unemployment will almost certainly increase over the next year and be slow to return to pre-recession levels.

Drawing conclusions about the efficacy of the Obama stimulus four months after its passage is ridiculous. Arguably it should have been larger and involved even more transfers to fiscally-strained states but a small group of Senate centrists, whose votes were needed to shut down a filibuster, made that impossible. Under pressure from Republicans and moderate Democrats, the stimulus also relied more heavily on tax cuts than was justified, given the tendency of households to save such rebates in times of economic peril. But the dollars are beginning to flow more rapidly in ways that will almost certainly hold unemployment below where it would otherwise have been. What the administration forecast in January is beside the point. Does any serious analyst believe that we would be better off without the stimulus or by converting all spending plans into additional tax cuts?

The Car Allowance Rebate System (as it’s formally called) runs through Labor Day.

If you qualify, the rebate is incredibly easy to get. The dealer does all the work and deducts the rebate from what you owe on the car or truck you’re buying.

Here are the basic rules:

• The car or truck you’re trading can’t be older than a 1984 model (although there are slightly different rules for larger trucks).
• It can’t have a combined fuel-economy rating of more than 18 miles per gallon. To see if your vehicle qualifies, go to fueleconomy.gov.
• The vehicle must be drivable, and legally owned and insured by you for at least one year.
• The sticker price of the new car or truck can’t exceed $45,000.
• The combined fuel economy estimate for the new vehicle must be at least 22 m.p.g.
• Your new car or truck must get at least 4 m.p.g. better than your old one. If the difference is between 4 m.p.g. and 9 m.p.g., then you’ll qualify for $3,500. If the difference is 10 m.p.g. or more, you’ll get a fat $4,500.

The rules are a little different if you’re trading a pickup, sport-utility vehicle or van in on a similar vehicle.

For small pickups, SUVs and minivans (which are considered “Category 1″ trucks in the CARS program), the traded vehicle’s fuel economy cap is the same as for cars, 18 m.p.g.

But if you’re buying another Category 1-type vehicle (trading a clunker minivan for a new minivan, for instance), the new vehicle only needs to get 20 m.p.g. to qualify for the program.

If it gets 2 m.p.g. to 4 m.p.g. better fuel economy than your old truck you’ll qualify for a $3,500 rebate. If the difference is 5 m.p.g. or more you’ll qualify for a $4,500 rebate.

“Category 2 trucks” are mainly full-size pickups and vans.

If you have one of these, you don’t have to worry about the 18 m.p.g. cap. They’re all eligible for the program.

But if you’re replacing an old Category 2 truck with a new Category 2 truck, the new one has to get at least 15 m.p.g. and deliver a 1 m.p.g. improvement to qualify for the $3,500 rebate and a 2 m.p.g. increase for the $4,500 rebate.

The National Highway Traffic Safety Administration is in charge of the CARS program and has created a Web site called cars.gov to answer questions.

Stewart showed a collage of clips from as far back as 2006 in which Schiff warned the economy wasn’t sound and predicted the collapse of the housing market would cause a serious recession, to the guffaws of other experts and anchors on CNBC and Fox News.

“All the profits people have in real estate are going to vanish,” Schiff said, and “…It’s not just subprime, it’s the entire mortgage market.”

“Well you’re simply wrong about that,” celebrity economist Ben Stein told him.

Uh, sit down and shut up, Ben.

Of course Schiff spends much of his time criticizing the government’s meddling in the economy.

I’m not sure I buy Schiff’s argument that we’d have been better off not to bailout all of the banks that caused the financial crisis with their stupid lending.

Federal Reserve Chief Ben Bernanke says that would have caused a cataclysmic economic meltdown and Great Depression II. (The panic that followed Lehman Brothers’ collapse lends lots of credence to that fear.)

But you sure can’t argue with Schiff when he lays part of the blame for the financial crisis on Bernanke’s doorstep.

“The Federal Reserve has kept interest rates artificially low, and that has encouraged reckless consumption and reckless borrowing,” Schiff says. “If the Fed would get out of the way and let the market set interest rates, interest rates would have been a lot higher all along. And higher interest rates would have discouraged borrowing and rewarded savings.”

Amen.

Federal Reserve chairmen do not do interviews.

But Ben Bernanke broke with tradition and did a long interview with CBS reporter Scott Pelley for “60 Minutes” last night. (Click here to watch the first part of the interview)

His message: If the federal government hadn’t bailed out the nation’s banks, and insurance giant AIG, we’d have fallen into a second Great Depression.

“I thought we were pretty close to a global financial meltdown” last fall, Bernanke says.

“How much danger was there?” Pelley asks. “How close a call?”

“It was very close. It was very close,” Bernanke replies “The Congress passed the bill that gave Treasury the right to put capital into the banks the first week in October. And it was in the second week in October that the crisis reached its peak. If we’d not had those powers we could have had a much, much worse outcome. So it was a very dangerous situation.”

For an understated academic like Bernanke, that’s the equivalent of setting his hair on fire.

He says the Fed made two big mistakes that helped to turn the recession of 1929 into the depression of the 1930s, and one of those mistakes was standing by and allowing bank after bank to fail.

The world wide panic that followed Lehman Brothers failure in September “proved that you cannot let a large internationally active firm fail in the middle of a financial crisis.”

While he doesn’t think the financial system is back to normal, Bernanke says it’s recovering, that the recession will end sometime this year and a recovery will begin in 2010.

President Obama has responded by promising that his administration will be a hands-off investor and sell its 60% stake in the automaker as quickly as possible.

But what exactly are we worried about?

Obama and his team of auto industry advisors led by financier Ron Bloom can’t be more incompetent than all those GM executives who wrecked the company — and remain in charge.

Indeed, that seems to be the weak link in the president’s entire plan.

Obama is using the automaker’s bankruptcy to make all the changes GM’s management resisted for years — focus on fewer brands, prune the overgrown dealer network, lower the company’s debt and deal with its uncompetitive labor costs.

Sure, Chairman and CEO Rick Wagoner and Vice Chairman Bob Lutz are gone. But I haven’t heard any plan to get rid of all the other top managers who are just as responsible for GM’s lousy cars and trucks.

Why should we have any confidence in their ability to create the new models it needs to stop losing market share, regain consumer confidence and truly compete with the likes of Toyota and Honda. Or even Hyundai.

Turning a spiffy new GM over to these guys is like turning the keys to a Corvette over to a teenager. It’s going to be wrapped around a tree in no time.

Until new leadership is found, I wouldn’t invest a dime in the new GM no matter how badly the president wants to get the government out of the car business.

George4title has won a following on the Internet with his YouTube videos on the dire consequences of the housing crisis and recession, and how to prepare for an impending, economic catastrophe.

He’s bought into the Ron Paul, Peter Schiff, Glenn Beck line of thinking that the huge deficits Washington’s running up to bailout the banks and boost the economy will lead to the collapse of the dollar — and civilization as we know it.

Recently, for example, George4title has posted videos on how to live out of your car and why we can no longer afford to buy food at grocery stores.

His videos usually have “inflation.us” superimposed on the action, which is the Web site of the National Inflation Association.

It’s “preparing Americans for hyperflation” by urging us to buy shares in mining companies that “will capitalize significantly on the upcoming gold and silver boom” since the dollar will soon be worthless.

But George4title’s shocking new video says he’s no longer preparing for economic collapse.

Seems his wife put her foot down and threatened to take the kids and leave if he didn’t stop preparing for the apocalypse and resume a more normal life. He’s torn, but acquiescing to save his family.

A mistake? Brings us back to the question of whether or not inflation is a serious threat.

This report from CNN’s “Lou Dobbs Tonight” says the “pay gap between pubic and private workers is exploding.”

It cites a study that says the difference in average compensation — that’s wages and benefits — between federal and private workers grew from 68% in 2000 to 102% in 2007.

The average compensation for federal workers reached $110,450 a year vs. $57,615 for the average private worker.

Why?

The biggest reason, according to CNN, is that federal workers continued to receive pensions and retiree health care benefits that were being reduced or eliminated by private employers.

There’s no reason to expect the trend will change anytime soon since federal workers just got a 3.9% pay raise at a time most private employers are dealing with wage freezes or pay cuts.

“The American taxpayer is paying for exorbitant benefits and compensation and pay scales that are double their own average salaries,” Dobbs says. “That’s the stuff of revolutions.”

Yeah, but shouldn’t some of that outrage be saved for the private employers who keep cutting the pay and benefits of their workers?

And anytime someone talks about fixing the economy you can bet they want to eliminate good paying jobs and make middle-class families work for less.

Is this really the road back to prosperity?

Lenders simply aren’t serious about modifying unaffordable mortgages.

The Office of the Comptroller of the Currency and the Office of Thrift Supervision studied 35 million mortgages and found that only about a third of the modifications made in the final three months of the year reduced the payments by more than 10%.

Incredibly, nearly one in four modifications actually increased the payments on borrowers who approached their lenders for help.

And this was after the Bush administration committed $750 billion of our money to save the banking industry from collapse.

It was also after the banking industry and its HOPE Now campaign repeatedly claimed it was doing so much for borrowers with deceptive adjustable-rate loans save their homes from foreclosure.

Ha.

The mortgage servicing companies and investors who own most loans have done precious little to fix the recession-causing, job-wrecking, foreclosure-exploding mortgage crisis they had a big hand in creating.

It also goes a long way toward explaining why so many modified mortgages have fallen back into default.

The study found that half of modified loans in which the payment was unchanged or increased were late again within nine months, compared with only one in four loans that had their payments lowered by 10% or more.

Note to President Obama: Stop giving the financial industry billions of taxpayer dollars and if it keeps treating us like dirt.

Congress and the Federal Reserve are considering new rules or laws that would stop banks from signing checking account customers up for costly and unnecessary overdraft protection without their permission.

It’s about time.

When debit cards were new, customers weren’t allowed to overdraw their accounts.

If you went to a store or ATM, and tried to spend or withdraw more money than you had in your account, the transaction was denied.

But that didn’t generate any money for fee happy big banks, so they began enrolling customers in “overdraft protection programs” to save them from potential embarrassment and inconvenience.

According to the FDIC, 86% of banks have overdraft programs and about 75% of those enrolled customers without asking them.

Instead of declining a purchase or ATM withdrawal for insufficient funds, banks allowed those transactions to go through, imposing an average fee overdraft fee of $34 on each and every time.

Most customers aren’t even aware that they have overdraft protection until they drain their checking account for the first time and get hit with a string of fees. They’re shocked to find that they’ve racked up hundreds of dollars in penalties buying $4 lattes and $3 Big Macs at Starbucks and McDonalds.

No matter what spin the banks put on it, overdraft protection wasn’t created to help consumers. They were setting a trap to boost their revenue.

Young and low-income customers, those most likely to be living paycheck-to-paycheck, are also the most likely to pay overdraft fees, according to the FDIC survey.

Of course customers can always call their bank and “opt out” of overdraft protection.

But the new government rules would require customers’ approval before they’re enrolled.

The banks don’t like that because they’re afraid lots of customers will say “no,” and they’ll lose billions of dollars in fees.

But it’s the right thing to do.