Free $800.00 just for being an American CitizenFollow

Am I in the minority to believe that the US should eliminate ALL of its debt ASAP? Cut down on non-essential services(read: pork) and this could quickly become a reality. Rather than paying huge chunks of cash out to foreign nations we could instead invest that money and reduce the costs of maintaining the country in the long run?

Anyone?

I really am mystified as top why, in a country of 250 million people, (or whatever it is) anyone isn't wondering why the feck it is that since 1989 there has been either a Bush or a Clinton in the WH, with the possibility of another Clinton on the way.

Are they really the best qualified in the country? If they aren't, then what exactly is this 'democracy' that you speak of?

Which was exactly the point raised in the article -- people don't change their attitudes towards spending until their long-term financial health increases. Small windfalls are just squirreled away and don't affect confidence.

Are you somehow arguing that spending isn't directly tied to consumer confidence?You'd have a real hard time convincing me that those people whose debts are destroying their consumer confidence are people who will be significantly helped with $500.*Shrug* The briefings and interviews I've read suggests to me that it's about consumption. You're welcome to theorize otherwise but I haven't seen anything to support the notion.

But if the problem being addressed is consumer debt, then it would seem to be correctly targeted, right?

Actually, the goal is for people to spend more than the rebate on new purchases, not to pay down debt. Consumer debt is the cornerstone of the caste system in the US, no one's going to mess with that.

Bolding mine. Mistake yours.So you expect that the government giving out what will amount to a token sum of cash in an effort, in the eyes of most people, to try to salvage the economy will increase their confidence that everything is a-okay and they should spend more?

Well... if you say so.

Edited, Jan 21st 2008 5:19pm by Jophiel

Are you dizzy yet?

I say that the money will be spent to pay off debts and that this might improve consumer confidence.

As usual, you're the only one in the world who holds that prediction.

Im interested to know how a $500 cheque can possibly stimulate personal financial confidence in an economy wich is 10 trillion in debt on a national level, added to wich the average household has personal debts of about $19,000 (excluding Mortgage).

You guys need to start spendin less than you earn. That figure cannot possibly be sustainable indefinately.


You'd have to be a bit of a moron to think that $500 would be anything other than a vote buyer.

I'm sure someone must have pointed out elsewhere also, that a healthy economy doesn't need urgent stimulus from government. And I honestly cant see how suggestions for urgent stimulus from the government, from the likes of Henry Paulson can be seen as anything other than a sign of some very serious concerns from the financial world in relation to the state of the US economy.


Good luck with things tho' eh.

Sigh...

Joph. That's all well and good that you understand that saving according to Friedman is the same as paying off debt. But you obviously *didn't* get it when you made this statement:



I was talking about their ability to reduce their debt (by using the money they got to pay off some of their debt). You responded by saying that they'd just squirrel the money away (save it). Um... If that's the same thing, then what's your point?


So you agree that giving people 500 bucks (or whatever amount it ends out being) will result in them being 500 bucks less in debt then they were before the refund, right?

Just checking, because that's what I was saying and to which you responded negatively.



Now. If we can get past that little bit of semantic irrelevance, we can perhaps move on to the point? That, yes, I am saying that if the public is less in debt, they'll be more comfortable spending. Note, that this is *not* in violation to Friedman's statement in the quote. Friedman was speaking specifically to the situation in 1975. As I pointed out earlier, that's a totally different economic issue.


One of the most common things I've heard recently about consumer confidence is that it's being affected most by consumer debt. Heck. Here's the first article I found talking about the consumer confidence issue. What does he say?:





Gee. Looks like a large portion of the problem is the volume of debt. Now, 800 bucks (or whatever) isn't going to fix the problem for everyone, but if you're that much less in debt, then that means you're paying that much less each month servicing the debt, which in turn *does* affect "income" (since you've got more left over after paying bills). Perhaps by a small amount, but IMO the bigger issue isn't to fix it all with this, but to give people a bit of headroom so that they can get themselves out of debt a bit faster. This is huge if you agree with this guy that existing debt will balloon soon, resulting in a potentially unavoidable burden for many families in the next couple years. That 800 bucks might be just enough to allow them to pay off enough of that debt so that they don't get crushed down the line.


Dunno. I just think it's absurd to argue that it's all about income and income alone. Friedman was speaking to a specific economic situation. I think the WSJ is making the mistake of misusing his statements (just as you are). Following the letter of a position without understanding *why* someone holds it is useless. If wages alone is the problem (as it was in 1975), then such a package doesn't work (as Friedman predicted). But if debt is the problem (as it appears to be today), then presumably it *would* help.


Get it yet?

What matters more then the amount of debt, is *why* you have it in the first place. Let me give you a simple example:


Let's pretend that two people each borrow 20,000 dollars. Person A borrows the money, and then spends it on a fun-filled trip around the world. Person B borrows the money and spends it expanding his business (whatever that may be). He hopes that the money will increase his revenue over time.

Both have borrowed exactly the same amount of money, but what they borrowed it for makes a *huge* difference. One can easily see that person A is just plain in debt. He'll have to pay that money off, and the money he borrowed doesn't in any way help him pay that money off. When Friedman talks about savings and paying off debt being the same, this is the dynamic he's talking about. Money borrowed one day, must be paid off by savings some other day.

However, the money borrowed by person B is an "investment". The money itself aids in paying back the money that was borrowed (via the presumed increase in revenue). One can argue that this is not only not a bad thing, but is a necessary thing. No business would exist if they didn't at some point do this. In fact, there are many economists who'll argue that any business or financial entity that isn't actively "in debt" in this way isn't actually utilizing it's opportunities well enough to grow and compete in a healthy market.


So money borrowed is not automatically "bad". It's good or bad based on what the money is used for. From a government's perspective, this is going to depend on whether the borrowed money in some way helps the economy in the long run. Obviously, there's a lot of debate over this. Some will argue that entitlement programs for the people will free up money for them to spend on consumption, which will increase business, raise tax revenue and raise GDP. Others will say that lowering taxes on those businesses does the same thing, but better. I tend to believe that either can work (depending on specifics), but that it's important to pick the right one based on the economic conditions at hand.


On the "OMG! We're in debt up to our eyeballs!" argument, we're actually not. While Smash was being funny with his comments (and using ludicrous examples), from a macro economic perspective, his statement is correct. If GDP grows faster then debt, then debt shrinks as a percentage of GDP. Even if the real numbers increase over time, it doesn't matter since it's the relative amount that matters. You ability to handle a given amount of debt is based on the size of the debt compared to your income. In the case of a government, we can't use revenue (since that would put us in the odd case of saying that debt decreases just by taxing more even if you don't spend it paying off the debt). Instead, we measure it as a percentage of GDP, since that represents the whole economy (and only goes up if the economy is actually growing rather then as a result of playing with some numbers on an accounting sheet).

This works on a macro-economic level because ultimately the value of a dollar is based on the relative value of different goods and services. The dollar is just a placeholder. GDP is measuring the total amount of "stuff" present in the economy to exchange. So just as Friedman observes that there's no difference between saving money and paying off debt, there's no difference at the macro level between raising GDP and paying off debt. They are the same thing. Raising taxes to pay off debt is counterproductive if in the process you slow down GDP growth such that even after reducing the dollar amount of the debt, it's actually risen as a percentage of the whole GDP. Similarly, borrowing money in order to allow you to lower taxes is a net positive if the GDP growth result's in the remaining debt being a smaller percentage of GDP.


It's not as simple as looking at a dollar value and declaring it "bad".

Well his record kinda sucks...and not because he's republican.

Both parties agreed on an ecomonic stimulas package. Many simply disagree that giving tax payers a lil chunk of cash is gonna provide much bang for the buck. I think many liberals find it particularly distasteful because it will not be going to the most needy.

Why do pubbies hate poor people?

Edited, Jan 22nd 2008 6:14am by Elinda

Who exhibits that mentality?