Will Stimulus Rebates be Eaten Up by Inflation?
By Alan Stewart Carl | Related entries in EconomyStarting next week, the stimulus package’s tax rebates will be going out. Most Americans will receive a sizable check. Thanks to some unusual government efficiency, the checks are actually going out earlier than expected. President Bush says this is a good thing because: “This money is going to help Americans offset the high prices we’re seeing at the gas pump and at the grocery store.”
Hold on. Gas and food? I thought this was an economic stimulus plan, not a mass welfare distribution. I guess the idea is if we have more to spend on necessities, we’ll have more left over to spend on the kinds of commodities and services that drive our economy (cars, electronics, dining out, etc.). But it’s interesting how a few months ago the rebate was supposed to fight recession but now it’s being portrayed as a way to help us with inflation.
Does that mean we’re in a period of recession and inflation? No. Not really. But there’s enough reason to worry. The economic mood is simply not one of prosperity. When the president has to talk about the government helping people afford necessities, we’re not in a good place economically or psychologically.
Whether the stimulus package actually stimulates anything remains to be seen. My rebate is going straight to pay off healthcare bills. I imagine many others will use theirs in a similar way, to shore up their financial situation rather than making a run to Target or Best Buy. The one-time cash infusion will be nice but it’ll be gone quickly. I have a feeling we may still be in this economic/psychological slump come November. It will likely be the dominant issue of the election.
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April 25th, 2008 at 1:14 pm
The “stimulus package” would have stimulated spending if it had been distributed the week before the SuperBowl. At this point, people are going to spend it on bills, day-to-day necessities, or simply sit on it in savings. People are too spooked to go spend (except for a little “pleasure revenge”). So the winners are:
Credit card companies
Some banks
Basic commodities such as fuel and food
Yay. I expect the economy to bottom out in July, stagnate for a few months, then the slow climb up after the elections are over (and of course the new President can take credit for the cyclical change).
April 25th, 2008 at 1:41 pm
Shoring up finances is a good thing. The government gets lower interest rates than normal people. So if normal people use the money to pay down their credit card balances, it’s still a net gain (and probably even better than spending it on consumer goods, since lower debt payments are a longer term gain).
April 25th, 2008 at 2:00 pm
Hear, hear!
April 26th, 2008 at 7:16 pm
Yes, covering increased food and fuel prices, plus paying down the credit card(s) will be the extent of it for most working-class and middle-class people. I don’t expect to see very many making down payments on cars, major appliances and the like with their rebates. I don’t even see them doing much small-purchase buying of the kind that would help prevent layoffs in retail and consumer-oriented services businesses.
The dollar’s decline in buying power means the rebates won’t go as far, however they’re used. What the cheaper dollar will do is ensure fuel and food prices will keep going up and up.
Let’s face it, Bush has made goosing the economy Job 1 ever since he was elected, and consumers, more than anything, have outperformed in response. But now consumers are tired, worried and tapped out. I will be surprised if this last exercise in goosing will be very effective, except in the sense of saying the situation could’ve been worse without whatever stimulus it’s good for.
April 30th, 2008 at 7:58 am
I’m not an economist, but wouldn’t this stimulus package increase the money supply of our monetary system, thus leading to inflation? (And I’m serious — not asking a rhetorical question). I mean, if they’re going to hand out $168bil it’s got to come from somewhere. But, would it be offset by the treasury not printing $168bil? If not, then there will be an additional $168bil in our system…more dollars, with less value. Right? If anybody knows or has an idea, please comment.
April 30th, 2008 at 10:19 am
Jay,
Technically, the money isn’t “new” money. It’s a return on collected taxes. If it wasn’t given back to taxpayers it would have been spent by the government. So, assuming there’s no money-printing shenanigans going on, the rebate shouldn’t directly create inflation. Although I’m sure an economist could provide a much more complete analysis.
April 30th, 2008 at 11:03 am
Well, there is difference between correlation and causation and I’m not one to such that getting any $$ back for the government which they stole in the first place is a bad thing. However, it is simply more deficit spending which if brilliantly done during times of productivity slow down and (the perfect storm) seriously not-good inflationary pressures across the board — will only exasperate the inflationary pressures. UNLESS, you do something really smart with it — which is to buy gold or silver and stick it in your basement for the next year. I am very serious. Don’t be an idiot — there is no durable or consumable good that you can buy with it that is going to create an additionaly wealth to you or the economy on the whole. Why waste it — You could pay off high-interest credit, not a bad idea.