So this week we received the 'Economic Stimulus' check. And I promptly sent it to earn interest in a foreign owned bank. What part of the US economy will that stimulate? How many others did the same thing, either on principle or practical logic? (since US based banks are offering even worse interest rates presently) What was the government's aim in going through all the expense and trouble?
The answer, as far as I can tell, is to attempt to prevent a recession, per definition, though not per practical application.
Read this: http://en.wikipedia.org/wiki/Recession
According to one widespread definition, a recession occurs when real growth is negative for two or more successive quarters of a year. However, there are differing definitions: In the United States, the National Bureau of Economic Research's (NBER) Business Cycle Dating Committee ultimately decides whether the economy has fallen into a recession. The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales."[1]
Essentially, the gamble is that by returning some taxpayer money, those taxpayers will use said money to make a few key economic (consumer activity based) indicators tick positive for one quarter this year (as most to all have been falling since fall of 2007 - the economics-nerd accepted start date of the current recession). Combine that with some political pressure on the NBER, and a recession and all the attendant doom-and-gloom media coverage could thus be avoided.
However practically can an extra say $1k on average per taxpaying family in the US matter, and does that 'fix' the problems with the economy that got us into this mess?
1) Debt? Apparently most people have some. (Yay for being an outlier here.) The smart money would use the $1k to pay down some debt to reduce the interest burden. Though $1k doesn't seem to even make a dent in the average US household's debt. How much is out there?
- On average, today's consumer has a total of 13 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, and bank cards) and installment loans (auto loans, mortgage loans, student loans, etc.). Not included are savings and checking accounts (typically not reported to a credit bureau). Of these 13 credit obligations, nine are likely to be credit cards and four are likely to be installment loans (Source: myfico.com).
- Fifty-one percent of the U.S. population has at least two credit cards (Source: Center for Media Research).
For credit cards:
- 29% of households owe $1,000 or more on their cards.
- 21% owe $2,000 or more.
- 6% owe $8,000 or more.
- 4% owe $10,500 or more.
- 1% owe $21,400 or more.
Summary: paying down debt won't do much to stimulate the economy, and even $1k per household is basically just buying time via interest (should this have been the bank stimulus plan?) rather than improving the overall picture.
References: http://moneycentral.msn.com/content/Banking/creditcardsmarts/P74808.asp , http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php
2) Consumer goods? How many people that get ~$1k back from last year's tax payments will spend it on a new tv/stereo/his and hers iphones, or other non-essential consumer goods? Would it be a sign of an improving economy or a rather sick one that people would think of these checks as 'free money' and treat it accordingly.
3) ? ... I may be missing something, but I wonder if there will be statistics collected on how this money is actually used.
4) Doesn't this country have massive national debt that it needs to pay down and if so why is it giving money back to taxpayers?!
The senate voting record on this mess is here: http://senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=2&vote=00010
And the house voting record is here: http://www.govtrack.us/congress/vote.xpd?vote=h2008-25
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