Best Quote of the Day

From Elizabeth Warren at Credit Slips:

Hanging the worldwide economic recovery on reigniting consumer spending is like investing in used fireworks.

The rest of the post, “The Stimulus That Can’t Stimulate,” is good:

How are Americans planning to spend their stimulus checks? According to a new poll, fully 41% say they will use their rebates to pay down debts. Another 19% are trying to protect themselves by saving it, so that 60% have no spending plans at all. Only 7% describe new spending. Debt is blocking a large part of any impact the stimulus package might have had.

[The rest of the breakdown: 17% will spend it on “ordinary expenses,” presumably what they would have bought anyway. No, the numbers don’t add to 100%–I assume they left out 16% non-responses and didn’t knows.]

Why is paying down debt the number one objective of the tax rebate? Take a look at at a BusinessWeek graphic that shows how consumer debt increased 2000-2007 at a rate much higher than in the 1990s. While you are there, read the article on the powerful contraction occurring in consumer spending.

Debt is crowding out consumer spending. A family that is paying 18.9% on a balance of $8000 has a lot less money left over for basic purchases, much less any money to buy anything new.

Alan Greenspan thought that it was great for Americans to continue spending in the 1990s and early 2000s because it kept the economy healthy. But it didn’t keep the economy–or the family–healthy. Instead, it meant that we had a false boom, growth that was financed out of tomorrow’s earnings. Now the bills are coming due.

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  1. Anonymous

    fully 41% say they will use their rebates to pay down debts.

    Can we just stop with the pretty words and call that a bank bail out?

  2. Max

    I don’t know how much credence do such surveys have. It’s hard to believe most people won’t blow their rebates on discretionary items. Maybe the respondents just want to sound as being responsible adults, or maybe they are telling what they are _projecting_ to do, not what they are going to do – big difference.

    Expect massive ad campaigns around the rebate time – TVs, iPods, etc

  3. Anonymous

    It had to happen this way. During the euphoria, the lone voices warning against the bubble were drowned out by the loan voices (cheezy, yes?).

    Anyway, it would appear the US trade deficit is creating a bipolar deflationary/inflationary environment in the US and inflation in the export economies.
    Who’da thunk it. If the American consumer doesn’t get up and spend pretty freaking soon, there might be a recession. Luckily the US built a surplus during the good times and can run a counter cyclical deficit in the bad times.

    Oh, we ran a deficit during the good times ? Wow, we really are in deep doo doo.

    Maybe there really is something to this economics stuff. If this is the long run does that mean I’m allready dead ?

  4. Richard Kline

    I never metaphor I didn’t like, and Ms. Warren has a good one, yes. For the leader, I’d have preferred ‘The Stimulus Which Fails to Arouse,’ but. And I’m with Max, $600 isn’t enough to make a dent in any relevant debt accreation, so these checks will likely go toward happy fuzzies or immediate needs.

    In the long-run, we’re all dying and don’t know it; just as well, too: we’d pray more and party less, wasting the time we have. : )

  5. Jon

    Yes, 41% will pay down debt — then they’ll find religion and not charge the cards back up ever again. This time, it’s different.

    ha ha!

    If Treasury were smarter, they would not cut the checks until November. With checks coming in summer, all those dollars will go to pool toys and ice cream instead of bolstering the all-important Holiday Shopping Spree.

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