I mentioned this briefly in yesterday's post.
I'm sure by now you've all read about President's Bush's proposal to "stimulate" the economy. CNN Money covered the proposal and negotiation sticking points here.
The jist of the plan is to give an $800 tax rebate to taxpayers (families can get up to $1,600) so they can then go out and spend this "windfall". This, in theory, is supposed to get us out of an oncoming recession.
I may be naive or ignorant, but I don't really see how this will solve anything. Also, this makes the gov't seem like the dopeman, trying to give the junkie a little taste just to get him going on his merry way down that debt highway again. I say this because they have also lowered interest rates by 75 basis points (100 Basis points = 1 Percentage point) which is a pretty big cut.
So not only are they giving you $800, they are also making it easier for you to go out and get a loan, or worse yet apply for a store credit card while your out spending your $800. Banks will lend more money out when rates are low, but you are going to have to pay it back eventually.
So with all the debt problems this country is having, people losing their homes, people making only $30K/year that are over 100K in debt, the country itself has the largest trade deficit it has ever seen, the plan to give the economy a boost is to give everyone a little money and hope they spend every last dime and maybe a little more. PURE GENIUS. If they really want to show us how to deal with this, they would ride out the recession, in the same way you would ride out a dip in the stock market, and just wait it out. If the recession last longer than planned, regroup and then come up with a strategy. Show the people that investing for the long term is the best way to invest, don't panic at the first sign of peril. Ride out the highs and lows, but still keep an eye on things to make sure their not getting out of control.
Say everyone goes out and spends their rebate, what happens after that? Stores will see a big surge in sales for about 2 months and then everything goes back to normal. This is like an overweight person locking their refrigerator in order to keep from eating....we're not dealing with the underlying issue.
If the gov't were to sponsor financial planning courses, teach people/families the perils of getting too deep into debt, or maybe even reduce taxes at every bracket (which would boost the economy on a more long term basis in my opinion), this would be much more beneficial than giving a rebate and hoping everyone goes out of their mind and digs themselves deeper into the hole and gets closer to claiming bankruptcy.
If this plan does get approved, and selfishly I hope it does because I could use $800 to reduce my credit card balances, I hope everyone opens an ING Direct account and puts the money right in there and show Bush that we're not playing these games anymore. We're getting serious about our money over here
Thanks for Reading
Love Ya Baby
Labels: Personal Finance