Tax Rebates
Well, I've been wanting to hit on this topic for a while but haven't had the time. The Feds are going to send all individuals with under $75k in income last year a $600 check and $1200 for couples. And they are doing this in the in hopes of stimulating the economy. I see the president on TV telling people that they should spend their rebate checks to get the economy growing again. But here's the problem, the economy has stopped growing because the last five years of growth has been an abberation. The economy was fueled by the housing bubble which was first started with historically low interest rates following 9/11 and then by creative financing by the Wall Street banks to keep the good times rolling when rates started to rise. Consumers were able to borrow incredible sums of money for spending based on artificially inflated home prices. This unquenchable need to consume eventually resulted in a negative savings rate for the average American. What this means is the average American was spending more than s/he was bringing home so they had to supplement their income with home equity or credit card loans. Obviously that debt was going to come due or reset at higher interest rates at some point and the house of cards would topple. That's where we are right now. People are scrambling to refinance at rates they can afford and pay down their credit cards. Basically we are trying to get back to a "normal" or equilibrium position.
So here comes the government to help us out. Giving us our money back in the form of a tax rebate. And what do the politicians (even the supposedly "fiscally conservative" ones) say, go out and spend it. Now I realize that they collectively ignore debt and just keep spending your money for the government, but businesses and individuals can't just continuously borrow and spend with no consequences. The politicians are just trying to prop the economy back up with the rebate so they can tell their constituents in the next election about how they voted for the bill that saved the economy (temporarily). The politicians and their staffers know damn well that most Americans should use their rebate to get themselves out of financial trouble not buy big screen TVs. But what can we expect from a government that doesn't teach basic finanical skills in its schools. That's a whole other topic I could rant on for days.
The bottom line is that our economy needs to stopping growing for a while to allow the fundamentals catch up. Just like when a stock price runs way up on hype, two things will eventually happen 1) the price stops rising and the fundamentals catch up so that things are back to equilibrium or 2) the bottom falls out and we get to equilibrium by losing our shirts. The government is attempting number one but may just be delaying number 2. Our economy ran up on the hype of ever increasing home prices and now we need to get back to equilibrium. It's going to cost a lot of jobs in the near-term but that is reality, the last 5 years were not. At the end of the day (or bubble) it always comes down to simple supply and demand. So help us get back to equilibrium by paying off your debt and stop spending more than you bring home. And if you have no debt and are already saving substantial amounts, you are way ahead of the curve so go buy a big screen TV as a reward!