Why Does Obama’s Stimulus Package Have to GIVE Money?

I was chatting about this over the weekend with a couple people and we really couldn’t put a good finger on what the detriment would be.  It saves money, stops inflation, and will give [good] credit to people that deserve it.

I’m talking about instead of Obama signing an $800BIL package to pump money into our economy, how about taking the debt away.  So not just banks or car makers – everyone.  What’s the problem?

Everyone Has Debt

The grocery store owner owes money to the farmer;  the farmer owes money to the banks; the banks that loan trillions of dollars a year have debts they have to pay to other banks.  Money is cyclical.

If you’re already in debt, getting another $1500 from Obama & Co. isn’t going to help you stave off the bank from taking your house for too long.  Just like the last payment, which hasn’t apparently done too much, is going to get used by the users how they use it.

If you’re a good saver, you probably put that money towards something good last year.  Your ROTH IRA or a high-yield savings account, or towards your house.  Something that’d grow.  And odds are, you weren’t one of the people that was in trouble.

If you’re on the flip side of that coin, you likely spent the stimulus package on a trip to Disneyland or a new car, while ignoring the point of it to put it towards something to give you some breathing room.

Yes, it was dubbed to “stimulate the economy” and you did with your vacation and your new car, but those were likely just last hurrah’s before you lost your house.Now here it comes again with another fat stack of cash to help these people out again.

The responsible people will do what is needed, but the irresponsible folks are likely just going to do something similar again.  The problem isn’t money, the problem is people’s management of money.

If were you to wipe the slate clean across the board and heavily wratchet down the available credit to those that couldn’t afford it, we’d save ourselves from getting caught in this trap in the first place.  The people that couldn’t afford the things they’d bought would get a free ride this time, and not just a temporary life jacket.  It’d be insane, but isn’t 800BIL across the board?

Additionally to the people that are responsible with their money, they’d be re-stimulating the economy by re-investing and reallocating funds properly.  They’d no longer have a car payment or a house payment, as it’d be wiped clean.

They’d be putting their money back into something that would turn a profit for them, and likely in America. To the people that only had 2 years left on their 30 year mortgage vs the people that just bought the house, tough luck and good work paying it down.  Timing is everything I’d reckon.

If that’s too dicey for you…

…how about a stair-step approach to it.  Something along the lines of if you’ve had good payments and credit for 15-20 years, you get your debts paid 90%.  If you’d had good credit for 10 years you get 80% paid, 5 years, 60%.  1 year 30%, etc.  Something so that you get rewarded for the things you’ve done, but get helped at any avenue along the way.

So if you’re a business owner, you know how it can be. Imagine you sell a product, and have just shipped off 50,000 units of your product. You’re no longer getting paid for those products, but you no longer have to pay for them either. No harm, no foul. Send back all the unused items and start again.

Conclusion

I’m not convinced that the first Stimulus Package did anything.  I’m not saying I don’t appreciate it, because I’m good with my money.  I put that money to a few beefier payments on my mortgage, and I’m happy to do it again.  But getting to the root of the problem would be a better stance at the highest office.

I think that “root” is the availability of funds.  It reminds me of the Steve Martin skit from SNL many moons ago – What Do You Do If You Can’t Afford It?  It rings really true for America, and we’ve gotten ourselves in a rut in thinking that credit is easy to come by and easy to get out of, when it is not.

It’s really straight forward to keep your credit clean.  Don’t use it if you don’t have it.  American banks have gotten loose with the cash and need to bring it back to the earlier days of frugality.  If you didn’t have the cash, you didn’t get what you wanted, period.

I say we give everyone a blanket wipe across the board.  We all screwed up, we all know it, and [some of us] think that tossing another nearly 1TRILLION dollars at the problem isn’t going to solve it.  Nip folks with bad credit and don’t let them get it again, would that solve the problem?

photos by: Jeff Keen, chegs

Filed Under: financial education

  • Well that wouldn’t solve the problem we have now. Preventing foolish risks to the economy by huge banks would make the economy safer from banks causing such damage again in the future, but we have the damage now. The concept of the stimulus is not to fix the cause of the problem but do cope with the problem we are left with due to people that paid themselves huge amounts of money that now the taxpayers are having to fund.

    This is because they never actually provided value, instead they created false returns to claim they provided a benefit to justify obscene pay. Then the banks are left bankrupt having worthless securities created by those paying themselves huge amounts of money. If the huge banks fail the financial system collapse creates huge problems – businesses that have operated for decades by borrowing some funds (responsibly) go bankrupt because no funds are available to lend them…

    The stimulus is not about fixing the problems of the past it is about countering the huge decline from the bubble economy. The import task of fixing systemic causes of the problems we face now, are likely to be half-hearted, minor attempts that do little to address the problems that created our current mess.

    Curious Cat Investing Blog’s last blog post..Volcker: Economic Decline Faster Now Than Any Time He Remembers

  • Only time will tel with this package, at least they are TRYING to do something!

  • The assumption that everyone has debt is wrong. Many people don’t have any debt. Second, you are lumping businesses with invidividuals and the tax laws that govern each are very different. Third, you said:

    “The problem isn’t money, the problem is people’s management of money.”

    If that’s the problem, then how does letting people off with a fresh start teach them anything? People need to make better decisions to correct their poor ones, not to start over and try again. They dug the hole, they can dig themselves out.

    And before anyone retorts that banks and companies should have to do the same thing – I AGREE. The stimulus plan should stimulate businesses, not bailout those that made poor business decisions. Poor decisions lost them money. In business money is success. So, THEY FAILED! End of story!

    Yes some people got the wool pulled over their eyes, but we each need to be responsible for the impact of our decisions. If buying that house outside your budget sounded too good to be true, that’s because IT WAS!

    Mike @ TheThriftyLife’s last blog post..Why It Pays To Speak Up

  • It makes sense to try and get rid of the debt, but spending more is not the answer. If you actually look into the amount of pork included in Obama’s stimulus package, it is ridiculous. Well, good luck fellow Americans.

  • Interesting perspective.

    I’m very much a supply-side type of guy, so anything that builds the government and doesn’t give back to business is not what I’m looking for. I would just like to see all that money put aside for tax cuts. Let the free market determine where money should be spent. I’m not too keen on having the government figure that out for me.

    Great post.

    Trevor @ Financial Nut’s last blog post..Budgeting Software Review: “Forcasting Made Simple” With A New Software Called Pocketsmith

  • This is just as good an idea as anything that Bernanke and Geithner has thought of so far., but it doesn’t solve the problem. completely. You still have all these responsible people that doesn’t do anything to help with GDP growth because they save more than they spend.

  • MaMaPa

    I don’t agree with you at all. I myself and one of those individuals with bad credit due to my stupidity when I was 18. And the stimulus package last year did go to a good cause. I spent it towards my debt so it was a great relief. But you just stating that everyone with bad credit should not receive any help would be discriminating. When in fact people with the bad credit should be the ones to get the help. I am not saying that the ones with the good credit shouldn’t get it as well, nor that all people with bad credit should get it. I’m just saying that things should be reviewed and determined whose needs it most. I think that if this were to be the case it would be the only way to save on funds. I do however understand that they gave everyone a credit in a act of fairness and Just but I believe that they should do it based on who will benefit and give back to the Economy.

  • i just hope that the economy would recover very soon because of the Stimulus Package given by our government

  • Gerald

    i hope that those Stimulus Package coming from the government would really kick start the Economy. the economic recession has been very bad on my business. *