Chinese, thanks for the stimulus! "As the economy begins to falter and people are whining and complaining, government is going to borrow $130 billion, probably from China, and send $600 checks to individuals and $1,200 to married couples, plus an extra $300 for each child. Oh, and it wants you to run out and spend it, probably to buy things made in China, and this is supposed to stimulate the economy.
Are those checks economic stimulus or bureaucratic boondoggle?
by Mike Summey • Weekend Millionaire • published May 23, 2008 12:15 am
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Imagine that you have $500 of discretionary funds each month after paying for essentials. You have several credit cards but owe nothing on them. Your credit is excellent, and other than your rent or house payment, you are debt-free. You have great credit and are in excellent financial condition.
All of your friends, however, seem to have so much more than you do. They take exotic vacations, buy expensive clothes and seem to enjoy a much better lifestyle than you. You know they don't earn any more than you, so you wonder how they do it.
Then you learn that your friends do what they want and charge it to their credit cards. They explain that they only have to make minimum payments that amount to about 2 percent of the outstanding balance. With $500 of discretionary funds, that's enough to make the payments on $25,000.
Maybe I should be like them and not worry, you think. After all, as the years pass, you will get raises, and your income will keep going up. You decide to join your friends and start living it up.
The first month you buy some new clothes and join your friends at a nice restaurant for dinner. They are thrilled and tell you how happy they are that you are finally loosening up and having some fun. After all, you only live once, they tell you.
The first few months are great. You're having the time of your life, and the payments on your credit cards are just a few dollars each month.
But gradually the balances creep up. As more and more money is required to make the credit card payments, your once-healthy discretionary funds start shrinking. Eventually, your balances reach $25,000, and it takes your entire $500 to make the minimum payments. You are left with few options: You have to either earn more or spend less. You start complaining about your circumstances and wondering how you're going to make ends meet.
Then your credit card company sends you a letter that says it knows you're struggling and wants to help. The company will send you $600 cash to help out, and it will just add it to what you already owe. Oh, and if you're married the company will increase it to $1,200, and it will add another $300 for each child.
Absurd, isn't it? But isn't that exactly what's happening in our country? As the economy begins to falter and people are whining and complaining, government is going to borrow $130 billion, probably from China, and send $600 checks to individuals and $1,200 to married couples, plus an extra $300 for each child. Oh, and it wants you to run out and spend it, probably to buy things made in China, and this is supposed to stimulate the economy.
Following World War II, the national debt was more than 90 percent of gross domestic product. By 1980, high taxes had reduced that number to just more than 30 percent. Then President Reagan's tax cuts were implemented. Since they weren't coupled with corresponding cuts in government spending, the debt began to accelerate. People weren't willing to give up government programs in order to have more cash in their pockets. As a result, the debt is now in excess of $9.7 trillion. That's what happens when you live above your means. It's bad policy, whether it's your personal finances or the government's.
This gush of money from the incentive program may mask the real problem for a little while, but as with credit cards, eventually the bills must be paid, and we'll be forced to face some hard realities.
Here's a tip: If you spend your economic stimulus check, you'll only be adding to the problem. Since you can't stop the government from borrowing, at least use the money to get your personal finances in order. Use it to reduce your debts, or if you don't have debts, save the money. Eventually, you're going to need it to cover the higher taxes it will take to pay off the government's debt.
This is the opinion of Mike Summey, co-author of McGraw-Hill Publishing's international best-selling Weekend Millionaire book series. He can be reached at successtips@aol.com or visit www.weekendmillionaire.com. |
