The Thumb in the Economic Dike

AP:  With unprecedented speed and cooperation, Congress and the White House forged a deal Thursday to begin rushing tax rebates of $600 to $1,200 to most tax filers by spring, hoping they will spend the money just as quickly and jolt the ailing economy to life. Rebates would be even higher for families with children.

The one-time tax rebates are at the center of a hard-won agreement to pump about $150 billion into the economy this year and perhaps stave off the first recession since 2001. House Speaker Nancy Pelosi, Republican leader John Boehner and Treasury Secretary Henry Paulson worked out the details in negotiations that stretched into Wednesday night at the Capitol.  CONTINUED

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I'll admit up front I'm a hypocrite:  despite my below remarks I'm certainly not about to turn away free money.

That said... does anyone else see anything wrong with the Federal government bailing people out of their own bad judgment and bad corporate fiduciary responsibility (I'm taking to you, Countrywide)? I mean, before I bought my first house I thought only an idiot would sign up for an adjustable rate mortgage.

Apparently there are more idiots out there than I thought.

Furthermore, I'm no Alan Greenspan but I the way I see it our economy's based on two principles:  owning property and buying stuff.   Lots of stuff.  And what are we supposed to do with the tax kickback?  BUY, BUY, BUY!

Sure, I might finally buy some tools... or I might sock it away in savings or an investment, which apparently is NOT what the fed wants me to do.  I think blowing the wad on trinkets and baubles isn't a wise course.

But let's fast forward to May/June, when the checks should start arriving.  $1,200 doesn't do much for someone about to lose their house.

Apparently during the last kickback in 2002 most of the money was spent within 6 months, so sticking with that paradigm what does Nov/Dec 08 look like?  A potentially huge holiday windfall for the retailers, but still balanced out by consumers who've lost their shirts.

Maybe I'm just a pessimist, but as a new homeowner the situation frightens me.  No, I didn't sign up for an ARM, but thanks to the realty orgy of others my equity is on the line.  I might be moving as soon as July 2009, and planned on renting out my roost.  That made sense before the bubble, but how do I rent out in a glutted buyer's market?  My hope is in the reports indicating the rental market is good simply because credit is tighter for buyers, but hope isn't a plan (man, I sound like a grouchy old adult right now... someone pass me my dockers slacks and insurance policy).

My question, though, is this:  is an economy based on buying stuff sound, or is it a deck of cards?

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Comments

[Tom]

I remember when the economy was based on GNP, which was based on manufactured goods. Now with a service-based economy (i.e., global economy), it's now based on how much everyone buys.

One little hiccup such as the "lending crisis" and everything goes in the tank...

[OG]

Someone on CNN said it best:

Is this going to stimulate our economy, or is everyone going to take the money to Wal-Mart and buy products made in China and stimulate China's economy?