A stimulus plan that would be popular

Did you know that total U.S. credit card debt is about $850 billion? That amounts to about $5,000 of debt for every credit card in the country.

It’s obviously a huge number. And yet it is a much smaller number than the amount the U.S. government doled out in three quantitative easing programs to prop up the economy. What if, instead of giving stimulus money to banks and big businesses, Congress and the president had instead just paid off everyone’s credit card debt?

Obviously such a plan would have been unfair to all those thrifty people who have little or no credit card debt. But it also wasn’t fair that the government bailed out banks that made stupid loans and that the executives making the decisions about those loans sometimes got nauseatingly large bonuses. It isn’t fair that middle class Americans often pay far more in taxes than wealthy folks who can take advantage of legal loopholes.

In terms of simply jump starting the economy, imagine the impact to ordinary people who would no longer have enormous revolving debts at 29% interest. Paying off credit card debts would free up hundreds of billions of dollars that people could be spending on an ongoing basis.

Did you know that consumer spending accounts for two-thirds of U.S. GDP? Yet when it came time to try to boost the economy, the government focused on the other third–three separate times.

Earlier this week Federal Reserve Chairman Ben Bernanke held a news conference and told everyone that the economy is well on its way to full recovery. He said that inflation remains under control and that rising gas prices really won’t have a significant impact.

I’ve got corrals in my back yard and I can recognize crap in virtually any form. I’m tired of government leaders who try to feed it to us while telling us how much we enjoy it and how good it is for us.

Realistically, I know the government is not going to wipe out existing credit card debt. But wouldn’t it be great if the next stimulus program benefited ordinary people instead of those who are already cashing big bonus checks?

Imagine the clout a politician would have at election time if he could claim responsibility  for erasing the bulk of consumer debt.

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1 Response to A stimulus plan that would be popular

  1. Ronald D. Hunt says:

    “He said that inflation remains under control and that rising gas prices really won’t have a significant impact.”

    Their not saying it but deflation is their true worry, remember that their are 2 ways that money can enter the economy 1. Via the method you point out the quantitative easing where the fed prints money and buys government bonds and 2. via the fed discount window.

    Now the second method is the issue causing all the problems right now, back in 1999 the supply side economic theorists got to try their idea’s out, they removed the deposit/leverage requirements on banks before 1999 they had to have 1 dollar on hand for every 10 dollars they borrowed from the fed and lent out. While also allowing consumer and investment banking to merge this allowed your savings deposits to be used in all forms of investment and not just consumer loans/credit cards/mortgages as had been the case before.

    Now we are all familiar with the result of that, a bank with maybe $4 billion in cash and $300~ billion in “assets”(term used loosely) could leverage themselves 30-40-50-stupid to 1 on “assets” as opposed to real cash. So in the case of say Lehman Brothers they turned $300 billion in “assets” and $4 billion in cash into about $14.1 Trillion dollars of mostly derivative investments. *all in all about $220 trillion “credit” dollars where issued via the discount window from 1999-2007*

    Anyway on to the current situation, all the banks failed, some got bailed out some didn’t(forgot their campaign contributions maybe?), but importantly the banks had to pay back all of these loans from the Fed discount window, this has the effect of slowing down lending as the banks pay down the loans, this also has the effect of removing a lot of money from the economy as they pay down their 30-40-50-stupid to 1 leverage ratio’s.

    Removing money from the economy via the fed discount window also has a deflationary effect which is why they are running the quantitative easing programs.

    Not to discount what is being seen in the CPI, but this is partly caused by the reduction in lending, when business credit is short businesses are forced to self finance their supply chains which causes them additional costs and lost opportunity which drives prices up, this should be temporary however as sooner or later the credit options will return. *Save for Oil that is different issue all together*

    The pungent smell coming from Washington is much worse then anyone thinks!

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