Latest Economic "Stimulus" Package

dalem · 01-24-2008, 17:27 PM

I find myself unable to care much either way. I'm not that thrilled about the govt cutting checks without also cutting taxes, but I'm not too bothered by the price tag. Essentially I think it is a relatively cheap bit of fluff that will accomplish nothing really positive or negative. But then, I don't think the economy is in any real difficulty either, so maybe I'm just thickheaded.

-dale

gunnut · 01-24-2008, 17:38 PM

I have a problem with the government handing out money to people who don't pay taxes.

We all know republicans want tax cuts. We all know democrats want tax cuts for the poor and tax hike for the rich. What I find amazing is when the TV said some democrats said that this "stimulus" package doesn't reach those who pay no taxes. So they suggest we give money and/or food stamps to those who don't pay taxes.

Great! Reward those who free load on others. Keep them on government handouts longer. Maybe they'll vote for you.

glyn · 01-24-2008, 18:30 PM

Quote:

Originally Posted by gunnut

Great! Reward those who free load on others. Keep them on government handouts longer. Maybe they'll vote for you.

I'm afraid that has been the strategy of the Labour government. It also might help to explain why they are still in office after nearly 11 years.

**Ironduke** · 01-24-2008, 19:43 PM

I think it would be better for mortgage & credit card companies to cut rates on their sub-prime accounts. Better to collect a bit less interest than see millions of accounts default for a total loss.

**Shek** · 01-24-2008, 23:00 PM

Quote:

Originally Posted by Ironduke

I think it would be better for mortgage & credit card companies to cut rates on their sub-prime accounts. Better to collect a bit less interest than see millions of accounts default for a total loss.

I'm not up to speed on the various proposals over the sub-prime mess and the analysis of them, but I found this synopsis of a study to be quite fascinating - essentially, the majority of the mess is probably due to "predatory borrowing", i.e., fraud on the part of the borrowers.

Quote:

http://www.nytimes.com/2008/01/13/business/13view.htm

IT’S NOT JUST THE LENDERS There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default.

Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn’t seem to matter.

In other words, many of the people now losing their homes committed fraud. And when a mortgage goes into default in its first year, the chance is high that there was fraud in the initial application, especially because unemployment in general has been low during the last two years.

gunnut · 01-24-2008, 23:50 PM

I think Wells Fargo has already renegotiated ARM terms on a lot of their borrowers. They're making less but keeping their customers around longer. Just like what Ironduke suggested.

**Ironduke** · 01-25-2008, 00:35 AM

Good move on WellsFargo's part... I'm a WellsFargo customer and have had six overdrafts reversed. Wish my interest rate was a bit better on my credit card. WellsFargo seems like one of the better of the major banks.

Too bad for CitiGroup. They're the shadiest of the major banks, let 'em burn.

**Shek** · 05-09-2008, 07:37 AM

With the tax rebate checks in the mail, what are you going to do with your checks? If the government really wanted this money spent solely on consumption to stimulate aggregate demand, then it should have sent debit cards instead.

Cafe Hayek: Stimulie, I

Quote:

Stimulie, I

After my commentary on NPR, I spent a lot of time last week talking to bright non-economists about the various proposals to stimulate the economy by giving people money. Most of them presumed that of course giving people money will improve the economy. I realized that most people have trouble with what might be called "macro intuition." So I thought I would start a series of brief observations on why giving people money is unlikely to cause the economy to grow.

Let us begin with the most basic question. If you received a windfall, that is, an unexpected increase in your income, what would you do with it? The right answer is that it depends. If it is a one-time increase, you would respond differently than you would if it were a permanent increase. A one-time increase is more likely to be saved compared to a permanent increase. With a one-time increase, you might use it to pay off current debt. Or you might add it to your savings. Or you might spend some of it and save the rest. Or you might spend all of it.

Would the answer depend on where the money comes from? It would seem to be irrelevant, but it's not. If you are the only person receiving the money, say from an unexpected inheritance, you might respond differently than you would if you knew that everyone was getting a tax reduction.

Let's consider two different situations.

1. Your rich uncle dies who hated you. But he left you money anyway—$1600. What do you do with the money?

2. The government announces a $1600 rebate for all families, financed by borrowing. What do you do with the money?

With the inheritance, you feel a little richer. You might splurge on a fancy weekend in New York. Or you might save all of it. Or something in between. But with the rebate, you are less likely to spend it. Why? Because your taxes (or someone's taxes) are going to go up in the future and that will discourage the feeling that you're wealthier. It's not just a feeling. We as a society aren't any wealthier. To see the importance of this effect, imagine that the government announces that there will be no taxes collected this year. Concerned about a recession, the government is collecting no taxes in order to encourage consumer spending.

Consider a family that because of the magnitude of this tax cut, finds they have an extra $16,000 available rather than a mere $1600. Imagine the husband calling his wife. "Honey, great news. The government isn't going to collect any taxes this year. We have an extra $16,000 to spend. Now we can finally (choose one: take that cruise, replace the minivan, renovate the bathroom)."

The wife replies "Well, if the government isn't going to cut spending (and they're not, because that would offset the stimulus of the tax cut, wouldn't it?), then it's going to have to borrow all the money to cover its spending for this year. The bonds the government sells are going to have to be repaid. We're going to have higher taxes next year and the year after. I think we better put that $16,000 aside to pay for those taxes."

Who wins that argument?

The wife, don't you think. So if a $16,000 tax rebate isn't going to stimulate spending, why would a $1600 rebate? Because people won't realize that they're going to have higher taxes in the future?

And as will see in future posts, even if it is different, it still isn't clear that it will stimulate the economy.

dalem · 05-10-2008, 04:28 AM

Me? I'll probably pay down some unsecured debt, i.e. credit card bill.

-dale

GAU-8 · 05-10-2008, 09:11 AM

Just got this "joke" about how to spend the stimulus check:

Helpful advice on how to best help the US economy by spending your stimulus check wisely:

If we spend that money at Wal-Mart, all the money will go to China.

If we spend it on gasoline it will go to the Arabs.

If we purchase a computer it will go to India.

If we purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala.

If we purchase a car it will go to Japan.

If we purchase useless crap it will go to Taiwan.

And none of it will help the American economy.

You can keep the money in America by spending it at the only businesses still in the US:
--Yard sales.
--Tattoo parlors.
--Domestic beer.

So be a real patriot; buy a flag at a yard sale, get drunk and get a tattoo.

01-24-2008, 17:27 PM	#1 (permalink)
dalem Lord High Hullabalooster *Senior Contributor* Join Date: 11-23-04 Location: Columbia Heights, MN Posts: 7,734 Country:	Latest Economic "Stimulus" Package I find myself unable to care much either way. I'm not that thrilled about the govt cutting checks without also cutting taxes, but I'm not too bothered by the price tag. Essentially I think it is a relatively cheap bit of fluff that will accomplish nothing really positive or negative. But then, I don't think the economy is in any real difficulty either, so maybe I'm just thickheaded. -dale

01-24-2008, 17:38 PM	#2 (permalink)
gunnut *Senior Contributor* Join Date: 01-27-06 Location: DPRK, Democratik People's Republik of Kalifornia Posts: 8,591 Country:	I have a problem with the government handing out money to people who don't pay taxes. We all know republicans want tax cuts. We all know democrats want tax cuts for the poor and tax hike for the rich. What I find amazing is when the TV said some democrats said that this "stimulus" package doesn't reach those who pay no taxes. So they suggest we give money and/or food stamps to those who don't pay taxes. Great! Reward those who free load on others. Keep them on government handouts longer. Maybe they'll vote for you. __________________ "Only Nixon can go to China." -- Old Vulcan proverb.

01-24-2008, 19:43 PM	#4 (permalink)
Ironduke Burgomaster Join Date: 08-02-03 Location: Minneapolis Posts: 6,662 Country:	I think it would be better for mortgage & credit card companies to cut rates on their sub-prime accounts. Better to collect a bit less interest than see millions of accounts default for a total loss. __________________ The Buck Stops Here

05-10-2008, 09:11 AM	#10 (permalink)
GAU-8 Old Cold Warrior *Military Professional* Join Date: 02-14-07 Location: Grapevine, Texas Posts: 352 Country:	Just got this "joke" about how to spend the stimulus check: Helpful advice on how to best help the US economy by spending your stimulus check wisely: If we spend that money at Wal-Mart, all the money will go to China. If we spend it on gasoline it will go to the Arabs. If we purchase a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala. If we purchase a car it will go to Japan. If we purchase useless crap it will go to Taiwan. And none of it will help the American economy. You can keep the money in America by spending it at the only businesses still in the US: --Yard sales. --Tattoo parlors. --Domestic beer. So be a real patriot; buy a flag at a yard sale, get drunk and get a tattoo. __________________ The acquisition of the knowledge of navigation has a strange effect on the minds of men.~Jack London Last edited by GAU-8 : 05-10-2008 at 09:19 AM.

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01-24-2008, 23:50 PM	#6 (permalink)
gunnut *Senior Contributor* Join Date: 01-27-06 Location: DPRK, Democratik People's Republik of Kalifornia Posts: 8,591 Country:	I think Wells Fargo has already renegotiated ARM terms on a lot of their borrowers. They're making less but keeping their customers around longer. Just like what Ironduke suggested.

05-10-2008, 04:28 AM	#9 (permalink)
dalem Lord High Hullabalooster *Senior Contributor* Join Date: 11-23-04 Location: Columbia Heights, MN Posts: 7,734 Country:	Me? I'll probably pay down some unsecured debt, i.e. credit card bill. -dale

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