Wednesday, January 23, 2008

Smoldering Hole in the Pocket

I'm not so sure people are in a spending mood. As a bi partisan discussion continues, that in itself unique in this day of wedge politics, on how to stimulate the economy, most agree a fat check is on the way. $500 to $800 per single, double for couples, in the hopes of a spending spree. I'm not sure that is what would happen on a large enough scale. Others share my thoughts:
The interest rate drop could encourage spending because the rates of many consumer loans are tied to it, including most credit cards. The president's hope is that Americans will go out and spend any rebate check that comes their way.

Both strategies have worked before, some economists said. A series of rate cuts by former Federal Reserve Chairman Alan Greenspan, and a tax rebate in 2001, kept the economy strong after the Sept. 11 terrorist attack that threatened serious panic.

Don't count out the American consumer's resilience, said Michael Englund, chief economist at Action Economics, a Colorado-based market consulting firm.
I think people are going to hang on to their funds, by saving or buying down debt.:
"I'd rather see a break in my health premiums than a cut in interest rates," said Bonnie Herringshaw, 57, of Minneapolis. "This won't be enough to make a difference in my life." She will use any money she gets to help pay down a $1,500 credit card bill, including some health care bills.

"It's too little too late," said William Schroyer, a tree trimmer for the city of Minneapolis. "The ideas that consumers can spend our way out of this is ridiculous."

At least some economists now agree with them. "All of a rebate won't go to spending," said Robert Hammer, CEO of R.K. Hammer, an investment banking company in Los Angeles. "There will be some, but others will put it in savings for a rainy day, or pay down bills they otherwise couldn't have."
I'm with them. Any check I got would buy down debt, and not necessarily stimulate the economy at the level it is intended. So what should happen . . . probably nothing. As was said earlier "It's too little too late"


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