Washington Gets it Wrong Again

As usual, Washington doesn't get it. They don't understand that times have changed and that the old smoke-and-mirrors tricks they employed in the past are not going to work this time around.

How anyone could have assumed, as detailed in the following Bloomberg report, "Americans Plan to Save, Not Spend, Tax-Rebate Checks, Poll Says," that Americans who are in hock up to their necks, who have little in savings, who are worried about the costs of health care and other basic necessities, and who fear that the American Dream is quickly slipping from their grasp would be keen to spend a big chunk of those debt-financed "stimulus plan" rebates on a host of new purchases -- more "stuff" -- is beyond comprehension.

Still, it's only (funny) money, I guess.

The stimulus plan Congress approved this month may provide less of a jolt to the U.S. economy than intended, as most Americans plan to save rather than spend their tax rebates, a Bloomberg/Los Angeles Times survey shows.

Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.

"People in Washington assume that about 40 percent of the money will be spent," said Douglas Elmendorf, a senior fellow at the Brookings Institution, a Washington-based research organization. "Much less would be disappointing."

Respondents are increasingly gloomy about the economy's course. A majority said the U.S. is already in a recession and that President George W. Bush hasn't done enough to tackle the home-mortgage crisis.

"It's time to circle the wagons and pay down debt," said Chris Danvers, 50, of Sacramento. He said he's noticed that business is slowing in the upscale steak house where he works as a waiter, so he will pay off the debt he recently incurred buying a refrigerator and a couch.

Bush and congressional leaders agreed on a $168 billion stimulus plan that has as its centerpiece tax rebates for most households. Taxpayers are expected to start receiving checks in May, ranging from $300 to more than $1,200 for some families.

Different This Time

About $36 billion in rebates were sent out as part of a stimulus package during the 2001 recession, and consumers spent roughly 40 percent of the money. That provided a boost to economic growth in the second half of that year and helped end the slump. The results may be different this time.

"We've got enough stuff," said Deane Bogardus, 60, a former college-admissions director in Hollywood, South Carolina, who plans to save his windfall. "We could easily blow it on something, but we're semi-retired so we don't need that much."

Plans to spend the rebate were consistent across income groups: About two in 10 respondents in households with less than $40,000 annual income as well as those making more than $100,000 said they'll spend the money. A plurality of respondents in the lower-income group said they'll pay off debt, while saving the money was the most popular plan among the wealthier group.

Spending Spurs Growth

"The more they spend, the more economic growth we're going to have later this year," said Lawrence Mishel, president of the Economic Policy Institute, a Washington-based research group.

Consumers' lack of confidence in the economy may be affecting their spending plans. About seven in 10 of those surveyed said the economy is doing badly, the highest percentage in more than a decade. Almost four in 10 said the economy is doing very badly, up from 31 percent who felt that way in a January poll. Thirty-six percent of white respondents called the economy very bad and a majority of blacks -- 55 percent -- agreed.

Those surveyed were almost as pessimistic about the general direction of the nation, saying by a margin of 63 percent to 26 percent that the U.S. is seriously on the wrong track.

The Feb. 21-25 poll of 1,408 adults nationwide had a margin of sampling error of plus or minus 3 percentage points.

'It's a Depression'

About six in 10 respondents said the nation is already suffering from a recession, versus 32 percent who disagreed. Forty-five percent said there is currently a moderate or mild recession, and 16 percent said it is serious.

"For me it's not a recession, it's a depression, because I just lost my job," said Gail Pool, an unemployed accountant in Richland, Washington. Pool, 62, said several of her relatives and friends have also been laid off.

Pool, like most other Americans, doesn't see relief in the short term. Six months from now, the economy will be in about the same condition it's in now, half the survey participants said, while almost three in 10 said it will be worse. Just 18 percent said things will improve by then.

Vote for Democrats

By a margin of 44 percent to 33 percent, Americans said the Democratic Party would do a better job than the Republicans at restarting economic growth. Among self-described independent voters, the margin was 37 percent to 28 percent.

Survey respondents were split on the need for a second stimulus package with additional unemployment insurance benefits and infrastructure spending that congressional Democrats have called for.

A majority -- 57 percent -- said Bush hasn't taken sufficient steps to aid the housing industry and help holders of subprime mortgages, a growing number of whom face foreclosure because of rising monthly payments. Among households with annual incomes below $40,000, almost seven in 10 said the president hasn't done enough.

Comments

[Deborah]

So, if they mostly put it in the bank does help plug up the holes in bank's balance sheets?

[Waiting for the Other Shoe to drop ...]

Exactly! If people save the maney by putting it in the bank, it certainly would help the bank's reserves and liquidity.
Therefore, knowing that only 40% would be spent, this is really a bank bailout in disguise.
However, if they are gping to bail out the banks (and they are) I woulf think this would be the perferred method for the working class.
Will we have to repay or be taxed on this money?

[charlottemom]

If the consumer cannot/will not take on debt, the government will MAKE you take that debt anyway (in the form of a "rebate") Ha!

[Rose]

These people are not stupid. When you look at one piece of the puzzle it makes no sense; but when you put all of the peices together the picture comes into view. When will people realize that those at the very top of our govt don't care about Democrat or Republican, that is just something to keep the people divided. George W. seems to have done everything to ruin our economy before he is out of office. No wonder he was 'quietly advising Hillary' when the presidential races first began last year. It only matters whether they give allegiance to the CFR, not whether they have a (D) or an (R) after their name. Hillary is the next puppet in line. George W. made everyone want to vote Democrat in November!

[Jes]

I wanna see numbers, not warm and fuzzy intentions. What someone says he plans to do with $600 that he didn't expect to get is idle chitchat. The real question is what is he doing with his paycheck right now? Has there been any change recently in the amounts Americans are saving? I don't believe people will save. They'll spend less, but only because credit is shrinking. And even then it doesn't yet affect many of us. To wit, recent quotes from coworkers (a high tech firm):
"We're going to Italy for 2 weeks in June, then Susie'll be in a language class in Mexico so I'm going up to Norway to see some friends."
"Did you see G.'s new PT Cruiser? She's got two now, plus the Jeep."
(about a kitchen remodel)"The wife says granite. I was gonna just have them put in that Corian stuff again but she doesn't like it."

[NM]

OK - it would cost SO MUCH LESS to simply cut the tax percentages back accross the board. Tax season is upon us, and this could potentially hand back a lot of/more refunds (paperwork that was already going to be processed) that would be as effective as this ridiculous, childish, and yes - costly - "Stimulus Plan". Imagine the labor and paperwork it's going to take to create and process all those extranneous "stimulus" checks and track everything. Better to just refund it throug the IRS, if at all.

And OF COURSE those in debt will use any cash coming to them to pay off their most urgent needs - be it medicine, money owed to high-interest rate creditors (such as PAYDAY LOANS!) and such.

A thousand dollars is a joke these days. It's an infinitesimal blip within a drop in a bucket. Typical of those who are well-off to think that while they make money off the backs of the working poor, the working poor are sitting around waiting for handouts because they "can't seem to save their money."

Do you know WHY they don't save it? Because they are being nickel and dimed to death. Because they are underpaid. Because medical costs, predatory lending, invisible pay cuts, inflation, etc. is screwing them even further. Not to mention our gargantuan "Free market" marketing machine that pushes spending at US citizens like crack.

This plan is ludicrous, pathetic and insulting. Billions - even trillions - are wasted by our government annually. Corporate welfare is alive and well. But help the little guy? Significantly? No, better to devalue the dollar beyond belief, prop up the banks (and the crooks) and encourage inflated greed - which - in the end - f**ks us all.

And by the way - where did all the profit go? During the housing boom, money changed hands like crazy. Fees were high, as were mortgage broker's and realtor's salaries. Did that all disappear? Everyone seems to forget one VERY CRUCIAL difference between the .com boom and the housing boom - the .coms were built on the Emperor's New Clothes - poof! But the houses - they're all still here. Even in foreclosure, money is made. In fact, I highly doubt that claim that mortgage lenders lose money on foreclosure. How can you lose money on a house that has equity paid down if you get it back scot free? Now, you get to sell it again. In the long run, you're still making money. I'm sure such a shell game is due to the creative accounting designed to even further a bank's revenue...