Bernake & Bush: stimulus needed

[yankeeyosh]

Bush and Fed chair Ben Bernake are in agreement that a "stimulus" package similar to that from back during the 2001 recession is needed. A possibility are tax rebates of $300-600. Is this enough? Do you think this is a bad plan? Will this favor those with high incomes and the middle class doesn't see much out of it? Discuss.

http://abcnews.go.com/Business/MarketTalk/story?id=4149757&page=1

[PenforPrez]

I don't see where it will do much good other than increase the deficit again.

[spiritedaway]

I haven't looked into it yet, but I haven't decided if I prefer the gov implement a stimulus plan, or let the free market run its natural course/correction.

Either way, the next few months will be interesting.

[yankeeyosh]

It looks like the proposed tax rebate might be as much as $800 per individual. It will also be for those with a salary of $85k or less, so middle class and not wealthy people will get the break. It sounds good, but the question is at what cost will this be...the money to pay for this is going to have to come from somewhere.

[redav]

The money is actually pretty small for the fed govt as long as it is a one-time thing. (Since the govt gets a skim of all the activity of the GDP, stimulating the economy has compounding effects on govt income.)

The 2001 rebates had a very good effect on the economy, and that rebate was smaller than this proposed one, so I expect it to be effective. But due to our consumer-driven economy, so much depends on what people think, rather than what is actually happening. The psychological impact will have as much effect as the actual dollars.

[PenforPrez]

But due to our consumer-driven economy, so much depends on what people think, rather than what is actually happening. The psychological impact will have as much effect as the actual dollars.

That's my thinking. Wall Street is now convinced we're in a recession, and it won't take much to convince the public of that.

Paul

[meatwad]

I looked at the title of the thread and thought it said barenaked bush.

[yankeeyosh]

The main problem I see is that this is yet again another "quick fix" that really won't solve the fundamental issues facing our economy. So we avert a recession? Great...but does that mean that people are going to buy houses they can't afford again? Does that mean that people are going to continue to maxx out their credit cards? Does that mean that Social Security and Medicare and health care issues are going to remain unchecked? Stimuli are great, but I really don't know if this $800 will save all the ills...I wonder if it might make the situation worse.

[Millenial]

Bush and Fed chair Ben Bernake are in agreement that a "stimulus" package similar to that from back during the 2001 recession is needed. A possibility are tax rebates of $300-600. Is this enough? Do you think this is a bad plan? Will this favor those with high incomes and the middle class doesn't see much out of it? Discuss.

http://abcnews.go.com/Business/MarketTalk/story?id=4149757&page=1
i think it's just a band-aid that isn't going to do crap in the long run. the government needs to cut it's out of of control spending, and consumers need to stop spending so much on dumb crap.

[redav]

The main problem I see is that this is yet again another "quick fix" that really won't solve the fundamental issues facing our economy. So we avert a recession? Great...but does that mean that people are going to buy houses they can't afford again? Does that mean that people are going to continue to maxx out their credit cards? Does that mean that Social Security and Medicare and health care issues are going to remain unchecked? Stimuli are great, but I really don't know if this $800 will save all the ills...I wonder if it might make the situation worse.
The housing bubble was caused by the same "irrational exuberance" that caused the internet stock bubble. I don't know how many times we have to go through the cycle for people to finally realize that things don't work that way. Things will only get better when there is more thought about the long-term and less about trying to get something for nothing.

[yankeeyosh]

An article about how rate cutting might exacerbate the situation later on and generate a worse recession (a Seventies redux), which is what I've feared all along: http://money.cnn.com/2008/01/18/news/economy/cure.fortune/index.htm?cnn=yes

[yankeeyosh]

A discussion by Lou Dobbs...

http://www.cnn.com/2008/US/01/22/Dobbs.January23/index.html

I don't know what to make of this just yet, but it is rather interesting to read...and rather scary when you think about it.

[yankeeyosh]

Am I the only one interested in this topic? Not to diminish what happened, but I think this has more bearing on our lives than a celebrity's death.

[sparky88]

I am interested in this topic.

I'm not happy about the income 'limits' proposed for singles (85K) and couples (110K). Since it is an income-tax refund I feel that everyone who pays income tax should get the refund.

[yankeeyosh]

I am interested in this topic.

I'm not happy about the income 'limits' proposed for singles (85K) and couples (110K). Since it is an income-tax refund I feel that everyone who pays income tax should get the refund.

Frankly, I was rather pleased when I saw that, since this really should be for the middle class and only for the middle class. Wealthy individuals are less likely to spend the money right away than middle class individuals, so this is more directed to generate money into the economy than if it is all encompassing. Honestly, I think all people making less than 85k should get the rebate, whether or not they make enough to pay taxes.

However, this isn't the end-all-be-all...there are too many fundamental problems with the economy that this will solve all issues. I am not sure how much this will help the economy other than a short-term boost. So I am still wary about this.

[sparky88]

Honestly, I think all people making less than 85k should get the rebate, whether or not they make enough to pay taxes.

But that would make it a free government HANDOUT, not a tax REFUND. The purpose of the stimulus program is not to help the poor, it's to stimulate the economy. There are other programs to help the poor (which I think is great and needed).

However, this isn't the end-all-be-all...there are too many fundamental problems with the economy that this will solve all issues. I am not sure how much this will help the economy other than a short-term boost. So I am still wary about this.

I couldn't agree more.

[yankeeyosh]

But that would make it a free government HANDOUT, not a tax REFUND. The purpose of the stimulus program is not to help the poor, it's to stimulate the economy. There are other programs to help the poor (which I think is great and needed).


Ah, but that's the argument. The tax rebate will help stimulate the economy because the poor will quickly spend the money. Even people on the upper echelon of the proposed bracket....say, those who make $70k or $75k...they really don't need the rebate, and it is highly likely that they will save the money. Therefore, it will sit and not do anything. The people making $15k or $20k probably would welcome the money with open arms and spend it quickly...thus fulfill the wishes of the pols.

Of course, this is all very simplified, and I am very leery of this. On paper, it sounds "good", but as we saw with the 2001 rebate, it doesn't necessarily mean that "happy days are here again".

[sparky88]

Ah, but that's the argument. The tax rebate will help stimulate the economy because the poor will quickly spend the money. ".
You are right that people making 15-20K per year may spend the money quickly (thereby helping the economy). But it still does not make it "okay" to give them a tax REFUND, which assumes they earned the money in the first place. Additionally, I would assume most of the money earned by that subset (and the middle class) would be spent on debt-repayment/bills--money already spent in the eyes of the economy. And I say this as a person who only recently (within the past 2 years) began making more than 18K per year.

Even people on the upper echelon of the proposed bracket....say, those who make $70k or $75k...they really don't need the rebate, and it is highly likely that they will save the money. Therefore, it will sit and not do anything. The people making $15k or $20k probably would welcome the money with open arms and spend it quickly...thus fulfill the wishes of the pols.".

I also loathe the presumption that those earning 70-75K (or even 100k+) will not spend the money. There are all kinds of factors that come into play--HCOL, lack of health insurance, kids/no kids, supporting elderly parents, SL, etc.

In every discussion I've had with people in "real life" it seems people will support the view that puts the most money in their pocket. That's just how the world works. So, if you make 5K per year, you'll think you deserve $800 of free money. If you are under the income limits set forth, and qualify for a refend-you'll be a happy camper. And if you're above the limits, and dont' get a refund you'll be pretty upset.

Of course, this is all very simplified, and I am very leery of this. On paper, it sounds "good", but as we saw with the 2001 rebate, it doesn't necessarily mean that "happy days are here again".

And again, we agree. This might "delay" the pain of a recession, only time will tell. In the meantime, let's drink and be merry for tomorrow we may die!

[sparky88]

FYI, here is information about my state (Ohio) and the the odds of a recession coming to town. Basically, I don't think the Fed's stimulus programs is going to make a dent in solving the problem (for us):

http://www.wkyc.com/news/rss_article.aspx?ref=RSS&storyid=81915

[yankeeyosh]

You are right that people making 15-20K per year may spend the money quickly (thereby helping the economy). But it still does not make it "okay" to give them a tax REFUND, which assumes they earned the money in the first place. Additionally, I would assume most of the money given to that subset (and the middle class) would be spent on debt-repayment/bills--money already spent in the eyes of the economy. And I say this as a person who only recently (within the past 2 years) began making more than 18K per year.

That is true...however, a lot of low-income people are lacking basic household goods. Also, I read somewhere that low income people tend to have much less debt than middle class people.



I also loathe the presumption that those earning 70-75K (or even 100k+) will not spend the money. There are all kinds of factors that come into play--HCOL, lack of health insurance, kids/no kids, supporting elderly parents, SL, etc.

Sorry...I meant to say that the rebate may not be "as needed" as someone with a lower income...not saying that it isn't welcome.


In every discussion I've had with people in "real life" it seems people will support the view that puts the most money in their pocket. That's just how the world works. So, if you make 5K per year, you'll think you deserve $800 of free money. If you are under the income limits set forth, and qualify for a refend-you'll be a happy camper. And if you're above the limits, and dont' get a refund you'll be pretty upset.

Perhaps it should be phased out gradually?


And again, we agree. This might "delay" the pain of a recession, only time will tell. In the meantime, let's drink and be merry for tomorrow we may die!

The 2001 rebate took a year for the effects to be felt...I don't know if we have a year per se.

[yankeeyosh]

By the way, even people in the lowest income brackets pay Social Security, so they are still taxed.

[lostindc]

Is it a refund, a handout, or just a good old fashioned election year bribe for the voters?

[sparky88]

Right, but social security tax and income tax are two completely different things. If it's an income tax refund (refund going to anyone who paid taxes in the 10% bracket), it should only go to people who paid income tax in 2007.

Nevertheless, it looks like the current stimulus proposal has changed quite a bit since this discussion began. I just read an article (on yahoo.com- not always the best source but whatever) that the new proposal would include something like a $300 check for every working American (no matter how little they make), granted they don't make a combined income of more than 130K/yr. I guess we'll just have to wait and see what happens.

[lostindc]

If the purpose of taxes is for the gov't to raise money to pay its bills why are they giving tax rebates when they are running up deficits and can't pay their bills with the tax revenue they currently have?

[yankeeyosh]

It's a bottomless pit.

I suspect that Bush will sing the praises of it during the State of the Union address...like it's his "legacy".

[Bman120]

The most important thing is to get people spending again and get confidance up. The mortgage crisis will ease as all crisis ease. What we need to do is make sure people are confidant.

As for US consumer debt, its the fact that we spend like we do that keeps everything going. If we stop buying things, its bad for everyone. I think this thing is being way overblown. Is it possible that this could get much worse? Yes, but there is no certainty of that just yet.

[sondra_finchley]

Yeah but THIS "tax refund" has an air of desperation and irresponsibility from the government attached to it which makes me feel even less confident. What is $300 going to do for me? I would rather they kept it and put it towards some decent public works projects or looked into high-speed rail or ANYTHING else that would serve the public good for a longer time period (and serve private interests just as well) than applying another 'quick' fix to the economy for us to go buy more crap made in China. Or, instead of buying cheap stuff no one needs, how many people will just save the money or apply it to debt payments or living expenses which they were going to do anyway?

Wont we be paying this money back through taxes next year?

[Samwell]

Wont we be paying this money back through taxes next year?

No, our children and grandchildren will, with interest.

Statistics released Wednesday by the nonpartisan Congressional Budget Office (CBO) show that the federal deficit — the gap between what the government spends and the revenue it collects — is projected to leap to $250 billion in the current budget year. That's up 53 percent from the $163 billion deficit in fiscal 2007.

If Congress approves the roughly $150 billion economic-stimulus plan being discussed, the deficit for the current fiscal year, which began Oct. 1, could swell to almost $400 billion.

Link (http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=econ24&date=20080124&query=deficit+report)

[wordsmith]

I'm a person who tends to save my refunds and rebates, so giving me $$$ ain't stimulating anything but my savings account. I don't pretend to think that most citizens do this, though.

[Bman120]

Yeah but THIS "tax refund" has an air of desperation and irresponsibility from the government attached to it which makes me feel even less confident. What is $300 going to do for me? I would rather they kept it and put it towards some decent public works projects or looked into high-speed rail or ANYTHING else that would serve the public good for a longer time period (and serve private interests just as well) than applying another 'quick' fix to the economy for us to go buy more crap made in China. Or, instead of buying cheap stuff no one needs, how many people will just save the money or apply it to debt payments or living expenses which they were going to do anyway?

Wont we be paying this money back through taxes next year?

I'd say its not about the individual, its about Americans as a whole. We need to get consumer confidance back up. Emotions have a major impact on the markets. As long as people are afraid, the mortgage crisis can end tommorow and it won't matter. Americans as a whole feel better when they know something is being done about problems.

Believe me, i'm not in love with government intervention in these things, and I don't know what the stimulus package will do, but if we can get confidance back, that itself is victory enough.