A recent headline from Wednesday, November 26th in the Washington Post reads “U.S. Moves to Revive Consumer Spending.” The first line of the article tells readers “The government said yesterday that it will deploy up to $800 billion to make it cheaper for Americans to get a home mortgage, take out a car loan or borrow money through a credit card . . .”
The word “deploy” has never been a financial term in my memory. Troops get deployed, but money is typically saved or spent. Dollars need to be spent rather than deployed to revive the economy so the article’s quote of the word deploy tells us the government knows Americans are short of more solid sources of money to spend: wages, salaries and savings. Instead they apparently hope consumers will return to their usual excess and borrow.
Spending our way to prosperity was the policy of Franklin Roosevelt in the 1930’s and every president since, but a policy that deploys dollars for consumer loans differs from previous expansionary policies.
Will it work? As a saver I believe there are many other savers like me who have matched percentage payments into defined contribution pension plans and 401(k) plans as well as other purchases of CD’s, stocks and bonds. This fall’s stock market and interest rate drops have caused a massive decline in purchasing power for this group.
As savers in a good economy we were the least likely to use consumer loans, or abuse consumer credit. In a bad economy, it is hard to think savers will be the ones most likely to resort to consumer borrowing. We are the group more able to postpone discretionary purchases like cars, clothes, electronics and vacations.
For the many others who defaulted on sub prime loans and continue to struggle to pay credit card balances it is hard to believe the government’s plan will find them ready and able to borrow more and spend us out of recession.
Recession appears likely with Gross Domestic Product down last quarter (3 Months) and revised figures due shortly. When our government stops talking about consumer loans and starts discussing tax policy and the Federal Budget, there will be good reason for hope. If all they want to do is "deploy" consumer credit, expect another quarter of decline.
Wednesday, December 3, 2008
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