Finance Globe

U.S. financial and economic topics from several finance writers.
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The Economic Stimulus Package

So, have you received the friendly little reminder the IRS sent to you? Many taxpayers will receive a rebate of $600, $1200 for joint filers, and an additional $300 for each qualifying child. Even those with no tax liability may receive $300; all you have to do to be eligible is to file your 2007 tax return. High-income filers may receive reduced payments or no payment. The IRS will start sending these out in May, separately from your tax refund. This is the economic stimulus package that is supposed to give a jump-start by putting about 150 billion dollars into our declining economy.

Well, I'm not going to complain about getting several hundred dollars; we could all use some extra cash. I give them credit for trying, but what does the Bush administration really think this is going to do for our economy? The president said, "By passing an effective growth package quickly we can provide an effective shot in the arm to keep a fundamentally strong economy healthy." He tells us to use the extra money how we see fit, and seems confidant that putting money back in the hands of Americans will put money into our economy and give it the boost it needs.

Is this rebate that is meant to be an "economic booster shot" really going to keep our economy healthy? Our economy has been propped up by rising consumer debt for years, and now it comes crashing down. The only way many of us can continue to spend the way we have in the past is to whip out the trusty credit card and incur more debt. That's what many of us have been doing, and now it's even more expensive to buy our basic necessities. Whether we're buying a gallon of gas or a gallon of milk, we are just paying more for those same needs at a highly rising cost.

A shot in the arm? Is this little extra chunk of change meant to vaccinate our economy against a parasitic invasion, to protect us? It sounds, to me, more like an addiction; give the economy the drug it needs to survive. The U.S. economy has been fueled by consumer overspending, and now we have to keep overspending if we don't want our economy to collapse.

This whole mess started when the sub-prime mortgage problem came to light, but those bad loans aren't the only thing to blame for our country's woes. American consumers have become accustomed to using credit for nearly everything; buy now and pay later, somehow. We can finance anything, from our educations to a fast-food cheeseburger. Who saves money for their next car, a luxury vacation, or big-ticket electronics? Not many. America has become accustomed to easy credit, and many consumers are already overextended, but manage to tread water for now. And now, with inflation on the rise, it's getting even more expensive to maintain an already unaffordable lifestyle.

So, how do we manage when inflation is driving up the cost of goods? There are three options; make more money, incur more debt, or spend less. Most of us would choose to make more money if they had the opportunity to do that, but unemployment rates are on the rise and pay raises are less generous than they used to be. Incurring more debt would just add more fuel to the fire, and is not a wise choice for those who are already have more debt than they can handle.
What about spending less? Well, who wants to do that? We love our high-tech gadgets, our new cars, our stylish clothes. We like to go out for entertainment regularly and have 300 channels on cable. Spending less means that we'll have less stuff, and that may be a hard bite to swallow for those who live the good life, even if the good life is only attainable with debt. Plus, spending less will hurt the economy, and we can't have that now. Can we?

So, the succes or failure of the stimulus package comes down to each person choosing to do what is best for the economy, or what is best for their individual financial situation. How does the average American plan on using their rebate? Pay off existing debts, save, or invest? Any of those choices is a smart use of extra cash for the individual who has more liabilities than assets. But using it to pay off things that were already bought, or tucking it away for later won't do anything to stimulate the economy. Some may choose to do their civic duty and actually spend the money on stuff, but I wonder if they will outnumber the ones who choose to do what's better for their personal financial situation.

I'm reluctant to believe that this stimulus package will do much for the economy. If consumers, who are up to their ears in debt, are willing to go out and blow the rebate money, then America has bigger problems than what can be solved with the equivalent of less than a week's pay. So, if we as a group are smart enough to put the money to good use that will benefit our own lives, the economy's in some serious trouble.

Remember, the idea of "spend, spend, spend" is what made our economy grow so strongly to begin with. We buy something, consume it, and then replace it. High-tech items soon become obsolete when someone comes out with a faster, more efficient version of the same thing. Last year's model is never good enough for us. Well, what do you expect? When you buy a mobile phone for $200 and then the next year the same phone is given away at $39, you feel like you now own a piece of junk. Is it time to go out and replace a perfectly fine phone because manufacturers figured out a way to improve it just enough to make you want it?

And why is it so hard to buy a quality item to begin with? If you bought a well-made product that lasts, well, you'd never have to replace it. That would be bad for the economy. That would mean fewer jobs and less money floating around in our system; it would hurt our economic structure if you only had to buy one phone every five years instead of three phones.

It would be one thing if our economy grew so fast because American consumers made lots of money and could afford a life of luxury, but that's not the case. Our economy swelled from consumers spending money that we haven't even earned yet, with the help of credit cards, loans, and mortgages. Now, lots of mortgages are going bad, loans are harder to get, and credit cards are charged to their limit. So how can we turn around and sustain a sliding economy when consumers just don't have the money that's needed to drive it? $600 just isn't going to do it.

The stimulus package may be an attempt to stave off a recession, or worse, a depression. Can a small check sent to millions of households reverse the direction we're headed? Though it doesn't look good, let's hope the Bush administration knows something we don't know. If things do get worse, it'll be really bad for the U.S. But maybe that's what it'll take before America wakes up. How long can we live beyond our means before it all catches up with us? What ever happened to religiously saving money with every paycheck for our future needs and desires? What about making good on a promise to pay back our debts, and having the common sense to only buy a home we can afford? Responsible debt management has flown out the window, and has taken our bustling economy with it.

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Tuesday, 15 October 2019

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