Wednesday, January 30, 2008

America's Economic Stimulus Package: Banking On Your Stupidity

Yesterday, the House (not the Senate) passed a $146 billion economic stimulus package. You, if you're a taxpayer, can expect a rebate of $600 to $1200 once it clears Congress. (depending on whether you're filing separately or jointly, and your income level) There are also tax cuts for businesses, allowing them to write off loses over the past several years, thus encouraging more spending than they otherwise would be able to do. But as far at the personal rebates go, the idea is that Americans' will go out and spend that money, giving a boost to our retail-dependent economy.

Is spending that $600 or $1200 on a new HD flat screen TV really the most financially prudent decision during a possible recession? What individuals would be better off doing is saving that money, especially considering most Americans' savings are lacking. Congress's and the President's plan is banking on Americans' stupidity, hoping that they will do the irresponsible thing and spend it frivolously rather than save it. (saving would defeat the whole point of the stimulus) That's how much your government thinks of the average citizen, or should I say consumer. It would after all be fair, I think, to say that we starting to think less of ourselves as citizens and more as consumers. What's the most patriotic thing you can do right now according to your government, shop 'til you drop. Why don't we just send out gift cards, that way no one wastes their money on their 401(k)s.

If I had to guess, we're probably going to borrow this $146 billion from overseas. I question the wisdom of adding that much more to our national debt for a short-term stock market high. Seems like we would be better off trying to pay it off rather than keep maxing out our national credit card. (Fortunately for the US government, and the world economy, Congress can just raises the credit limit whenever we get near defaulting. Don't you wish you could do that with your card?)

On top of that, the Federal Reserves dropped interest rates again today, another 1/2 point down to 3%. It could just be me, but I seem to remember a certain sub-prime mortgage problem. Did we not have our economy come crashing down in part because money was so cheap and people were borrowing when they shouldn't have been because offers were too good to be true. How is this going to help prevent that situation from happening again?

That said, on behalf of my 401(k) I'm going to have to ask you to ignore everything I've said and go spend your rebate, and not on anything like groceries. It's the American thing to do, after all. If only we could forget about the alleged recession, spend like normal, then the high consumer confidence would drive up the stock market and pull us out of the recession, allowing us to afford the spending in the first place. Makes perfect sense, right?

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