One event. Two different interpretations. Is consumer sentiment improving, or getting worse? I’ll let you decide…
“US late Feb Reuters/Michigan consumer sentiment rises to 70.8 UPDATE” Forbes, February 29, 2008
Consumer sentiment, as measured by the Reuters/University of Michigan index, rose more than expected to 70.8 in late February from a reading of 69.6 in early February.
Economists polled by Thomson’s IFR Markets had expected sentiment to rise slightly to 70.0 in late February…
“Consumer Sentiment Drops to 16-Year Low in February” Reuters, February 29, 2008
U.S. consumer sentiment dropped to a 16-year low in February, hitting levels that usually sound the alarm bells of recession, on worries about declining incomes and rising unemployment, a survey showed Friday.
Adding to the grim view, consumers’ expectations for the future also hit a 16-year low while worries about their ability to makes ends meet and the overall economy were as bad as they have been in decades, the Reuters/University of Michigan Surveys of Consumers said.
The Reuters/University of Michigan Surveys of Consumers said its main index of consumer sentiment fell to a 16-year low of 70.8 in February from 78.4 in January.
This was the final reading for February and was the lowest since February 1992. It was up slightly from the preliminary February result reported earlier in the month of 69.6, which also would have been the lowest reading since February 1992.
“Consumer confidence remained at the same low level that was recorded during the recession periods of the mid-1970s, the early 1980s and the early 1990s,” the Reuters/University of Michigan Surveys of Consumers said in a statement.
“The minuscule gain from the mid-month reading did not alter the basic fact that the extent of the recent decline has consistently been associated with a subsequent recession period,” it added…
On Friday it was reported that analysts from UBS AG, Europe’s second largest bank, were predicting total industry losses from the ongoing credit crunch would reach $600 billion, with banks and brokers accounting for $350 billion of these losses. MarketWatch’s Steve Goldstein said earlier today that financial firms have been forced to write-down approximately $160 billion since the crisis began last summer. Goldstein wrote that, according to UBS strategist Geraud Charpin’s note to clients:
Corporate collateralized debt obligation have been relatively spared because defaults are low and CDOs are not mark to market, but risks remain, particularly as monoline insurers are heavily referenced in CDO baskets.
In today’s “Daily Briefing,” Fortune’s Colin Barr noted that:
The comment comes a day after insurance giant AIG (AIG) took an $11 billion hit on its portfolio of credit default swaps and government-sponsored mortgage lender Freddie Mac (FRE) took $3.1 billion in writedowns on its credit guarantee and derivatives holdings. UBS itself was hit with a $14 billion writedown on mortgage-related securities earlier this month…
“Leveraged risk positions are a cancer in this market, wrote UBS analyst Geraud Charpin, “and the sooner it is treated the better.”
According to CNN Money, the world’s largest manager of private wealth assets is concerned most underestimate the impact of the credit crunch:
The bank also noted that the crisis’ impact on the real economy is likely to be stronger than currently expected.
‘To cut a long story short, if we had a ‘rhetoric index’ measuring the tone of messages from our economics team, it would have been dropping since last September,’ the study said.
UBS said the downward trend has accelerated over the last few months with both US and EU data becoming increasingly worrisome.
‘At this stage, therefore, we have to recognise the risk that the economy will suffer more damage than what consensus suggests,’ UBS said.
On Tuesday, MarketWatch’s Stacey Delo interviewed Stephen Brown from the Federal Reserve Bank of Dallas while he attended the Clean Tech Forum in San Francisco. Brown, the Dallas Fed’s Director of Energy Economics and Microeconomic Policy Analysis, told MarketWatch that high oil prices are here to stay. He predicts that the price will fluctuate in the $90 to $100 range for the next 4 to 6 months. Furthermore, Brown suspects that gasoline prices are heading toward an all-time high in the week before/week of Memorial Day.
Dr. Brown, who is also an associate editor of the academic journal Energy Economics, believes that the ongoing economic slowdown in the United States has been driven by factors other than oil prices. During the interview, Brown claimed that energy prices are responsible for only 1/10 of a percentage point slowdown in GDP growth on any given quarter.
(Note: The author disclaims any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)
Hell must have frozen over. Who would have ever thought that fashionistas would be discussing such “mundane” topics as the U.S. economy and recessions— unless, that is, they were involved in the business side of things? Yet, I’ve started to detect some of this chatter in world of fashion. Of course, just the discussion of such issues is reprehensible to some. According to one fashion blogger:
So many writers spend their days viewing society with a cynical magnifying glass — and oftentimes, bloggers are the worst….
I feel overwhelmingly bad about the state of… politics, celebrities, fashion, the world, etc. Instead of rose-colored glasses, I feel like I’m viewing things through black lenses. And goth is not my style.
Whatever you say. But some are actively discussing the prospect of a recession, and its potential impact on the industry. Yesterday, Isabelle O’Carroll wrote in the blog “Catwalk Queen” that:
We’re nearing the end of the fashion season and disgruntled rumblings are already being heard about the clothes. Even from designers such as Prada who usually wear their eccentric hearts on their sleeves the mood has been conservative and dare I say it a little sombre as the spectre of a US recession casts a shadow over the fashion world.
The hype surrounding the so-called ‘credit crunch’ which has led to repossessions and increasing debt in the US has sparked fears of a worldwide recession. The weak dollar has prevented buyers from large stores such as Saks Fifth Avenue and Barneys attending London Fashion Week. “London designers are the icing on the cake,” said Averyl Oates, the fashion director of Harvey Nichols. “And these days no one needs extra icing.”
With the prospect of an economic contraction looming, how have fashion designers responded? By attacking the recession head-on with even more opulent shows and extraordinarily creative designs. You go, girl! According to the Associated Press on February 25:
Luxury brands pulled out the stops in Paris on Monday with creative displays designed to ward off fears of recession that have cast a pall over the retail sector…
Guests including “Cashmere Mafia” star Lucy Liu watched the parade, set in a tent in the Tuileries gardens against a spectacular set of cascading water.
The no-expense-spared bash was Dior’s antidote to a retail climate undermined by fears of a U.S. recession, rising energy prices and a weak dollar.
“When times are tough, the mistake is to throw in the towel,” Dior CEO Sidney Toledano told The Associated Press. “I always use this metaphor: when the kids are not hungry, you have to cook even nicer dishes to stoke their appetite.”
“When times are tough, models grab orange mocha frappuccinos”
YouTube video link
Lauren Goldstein Crowe wrote on February 5 in Condé Nast’s Portfolio.com that:
You’d never know there was a recession looming from looking at the shows. They’ve been more opulent than ever…
Retailers fight recession in a number of ways. But for those at the top of the heap — stores like Bergdorf Goodman or Harvey Nichols — the best plan of attack is to bring in the most special pieces possible. Averyl Oates, the fashion director at Harvey Nichols said that while they are keeping an eye on the number of pieces they buy at the 8,000 pound mark, it is by and large, their lower priced goods that suffer in recession. It’s simply too easy for people to trade down to the high street for their jeans and casual clothes. But once you’ve worn a feather-adorned designer gown, or gold painted coat, or giant fur collared jacket, you’re just not going to be happy at Zara.
Will the fashionistas be able to defeat that menace known as recession? Will the author of this piece ever update his grunge-era wardrobe? Stay tuned…
On Tuesday, Nouriel Roubini, chairman of Roubini Global Economics LLC and former Treasury Department director in the Clinton administration, spoke with Bloomberg’s Michael McKee and Deirdre Bolton from Washington about Federal Reserve Vice Chairman Donald Kohn’s comments that day, the outlook for a U.S. recession, and the housing market. Dr. Roubini said the United States is already in a recession, as the economy started contracting back in December. He also predicted the recession will be “severe” and may last up to six quarters.
The Roubini interview (running time 3:34) can be accessed on Bloomberg News Video by following this link.
Until recently, Manhattan, an island borough of New York City and the most densely-populated county in the United States, appeared to have weathered the housing bust sweeping across the United States. In the fourth quarter, the average price of a Manhattan apartment soared 17.6% from a year earlier to $1.44 million, according to Prudential Douglas Elliman, New York’s largest real estate services company. The addition of two high-end condominiums (The Plaza and 15 Central Park West) to the Manhattan market contributed to this price rise. The median apartment price rose 6.4% to $850,000, while the average price per square foot rose 18.2% to $1,180. Prudential Douglas Elliman added that the number of apartments for sale fell 13.5% to 5,133.
Back on February 19, Pamela Liebman, chief executive of the Corcoran Group, a New York City real estate company, told Reuters’ Jonathan Stempel that a lack of supply and significant demand by foreign buyers taking advantage of a weak U.S. dollar has meant that Manhattan and New York City has “absolutely stood alone” in avoiding declining home prices. Liebman said demand remained “very healthy,” especially for the largest, multimillion dollar apartments, but realized the situation could change. She said:
If Wall Street has a terrible year, and the press is really talking negative
about the economy and the election, I think things could really slow down at the end of the year. I don’t see New York City crashing or coming to any kind of a standstill, because the product is too good and there’s too much belief in the city. What will stall this market is a negative economy, nervousness and skittishness about job security, consumer spending, layoffs, and sellers with unrealistic prices.
Unfortunately, it now appears New York City no longer “stands alone” in avoiding falling home prices. Yesterday, data released by Standard & Poor’s for its S&P/Case-Shiller® Home Price Indices showed that prices of existing single family homes in New York City declined 1.3% in the fourth quarter from the previous one, and fell 5.6% over a one-year period prior to December 2007.
Speaking about the Manhattan market, Jonathan Miller, director of research at Radar Logic (a data and analytics business that produces a daily “spot” price for residential real estate in major U.S. metropolitan areas), told Reuters on February 19 that the Manhattan housing market was “definitely going to see weakness” within a year or two. Yet, Patrick McGeehan of the New York Times wrote on February 3 that:
But lately, more cracks in the housing market have begun to show, and the trend is reminding some analysts of the severe downturn in the region during the recession that followed the boom years of the late 1980s.
Even in Manhattan, signs of weakness have appeared beneath the headlines about ever-rising average sale prices of condominiums and co-ops.
A report last week found that rents in Manhattan declined in January, by more than 7 percent in some neighborhoods, according to the Real Estate Group New York.
The latest set of numbers “reinforces our sentiment that the market has, in fact, turned,” Daniel Baum, the chief operating officer of the company, said in the report.
As for the significant demand by foreign buyers that Ms. Liebman referred to earlier, that situation may have changed as well. On January 30, Emily Friedlander of the Wall Street Journal wrote:
For months, observers of the Manhattan real estate market have been crediting foreign buyers for Gotham’s strong market. But that may be changing. New York Magazine is reporting that foreign interest in Manhattan real estate is finally waning.
“We’ve had nine clients we’d been working with since October, and they’ve stepped back,” says one broker quoted in the article. “I have one prominent family from Singapore who were about to make an offer, and they decided no.” The magazine cites turmoil in the global markets, as well as tightened lending standards as factors. Another broker quoted in the piece says his buyer walked because a bank told him he had to put 40 percent down.
Earlier today, data compiled by the Federal Deposit Insurance Corporation showed profits at federally-insured banks and thrifts plunged to a 16-year low in the fourth quarter as these institutions set aside a record-high amount to cover losses from bad mortgages. According to Associated Press business writer Alan Zibel, profits declined as major Wall Street banks wrote down asset values on mortgage-related investments. Zibel wrote:
Profits at the 8,544 FDIC-insured institutions between October and December dropped by 83.5 percent to $5.8 billion, hampered by soaring loan defaults and provisions for loan losses, the FDIC said. A year ago, these banks recorded $29.4 billion in profits.
It was the worst bank and thrift performance since the fourth quarter of 1991. Money set aside to cover loan losses totaled a record of $31.3 billion, up from $9.9 billion in the same quarter a year ago and $16.7 billion in the third quarter.
While losses accounting for more than half of the total decline in profits were concentrated in six large institutions, Zibel added:
However, FDIC officials said problems were also seen in community banks, with more than half of all banks insured by the FDIC reporting lower fourth-quarter earnings and half reporting growth in troubled loans.
According to a post today by Damian Paletta in the Wall Street Journal’s Economics Blog, the FDIC classified 76 banks as “problem” institutions for the fourth quarter of 2007 (up from 65 a quarter earlier), showing that a growing number of financial institutions are under strain. Paletta defined problem institutions as “those under closer regulatory scrutiny, as the banks are more likely to have weak capital cushions to prevent against failure.” He added that the FDIC never identifies which institutions are on the list, “as it could lead customers to rapidly withdraw funds from the bank.”
Paletta also wrote an article in the Journal today in which he said the Federal Deposit Insurance Corporation “is taking steps to brace for an increase in failed financial institutions as the nation’s housing and credit markets continue to worsen.” In “FDIC to Add Staff as Bank Failures Loom,” Paletta wrote:
The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.
FDIC spokesman Andrew Gray said the agency was looking to bulk up “for preparedness purposes.”
While there have only been four bank failures in the past 12 months, FDIC Chairman Sheila Bair, Comptroller of the Currency John Dugan, and Office of Thrift Supervision Director John Reich have all warned of a pickup in bank failures, according to the Wall Street Journal. Jaret Seiberg, Washington policy analyst for Houston-based financial services firm Stanford Group, told the publication that:
Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia.
An independent agency of the federal government, the Federal Deposit Insurance Corporation was created by Congress in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. At the end of 2007, it had $52.4 billion in its fund that backstops the nation’s insured deposits, according to the Journal.
Let me tell it to you straight. The. Math. Politicians. Sell. Does. Not. Work. And if we don’t start dealing with the truth soon, this country could face dire consequences.
-David L. Walker, Comptroller General of the United States, October 2007
On February 15, David M. Walker, Comptroller General of the United States, announced his resignation as head of the U.S. Government Accountability Office (GAO). Since November 9, 1998, Walker has served as the nation’s chief accountability officer, leading the GAO in its mission to help improve the performance and accountability of the federal government for the benefit of the American people. Back on February 15, Richard Cowan wrote in Reuters that:
Walker repeatedly urged Congress to waste no time in reforming massive government programs, such as health care for the elderly, which will grow significantly as the U.S. population ages.
“The picture I will lay out for you… is not a pretty one and it’s getting worse with the passage of time,” the blunt-talking Walker told Congress more than once.
Despite those warnings, Congress and the White House have yet to begin cooperating on how to tackle the huge growth in health care and retirement benefit costs.
On Monday, the Bush administration released its Financial Report of the United States Government for the 2007 budget year. And guess what? The U.S. government is promising $45 trillion more than it can deliver on Social Security, Medicare, and other benefit programs, according to the Associated Press yesterday…
Even worse, when the gap in funding social insurance programs (Social Security, Medicare, Railroad Retirement, and Black Lung Program) is added to other government commitments, the total shortfall as of September 30 increases to $53 trillion, up more than $2 trillion in just a year, according to the report. Comptroller General David M. Walker, who serves as the head of the Government Accountability Office (GAO), said Monday that, “Our government has made a whole lot of promises in the long-term that it cannot possibly keep.”
Yesterday, Bill Donoghue from MarketWatch had this to say about Walker’s departure:
Facing indifference on the Hill and unrealistic spending promises, Walker is resigning with five years still remaining in his term to head the newly formed Peter G. Peterson Foundation. Peterson, senior chairman of The Blackstone Group and Commerce secretary in the Nixon administration, has pledged an astounding startup budget for the foundation of $1 billion.
That money will attack what the foundation considers “the most substantial economic, fiscal and other sustainability challenges of our current age” — including federal entitlement programs, health care, unprecedented trade and budget deficits, low savings rates, mounting foreign debt, soaring energy consumption, an uncompetitive educational system, and the proliferation of nuclear warfare materials. Maybe Congress will listen this time.
The departing Comptroller General told Reuters:
As Comptroller General of the United States and head of the GAO, there are real limitations on what I can do and say in connection with key public policy issues, especially issues that directly relate to GAO’s client — the Congress.
My new position will provide me with the ability and resources to more aggressively address a range of current and emerging challenges facing our country.
MarketWatch’s Donoghue lamented:
This sounds to me like the ultimate sell signal on America…
When the nation’s best-informed watchdog resigns and few are acting on his recommendations on his “Fiscal Wake-Up Tour,” it’s time to reconsider over-optimistic domestic stock investments and look elsewhere, or bet against the U.S. market.
The “Fiscal Wake-Up Tour” is a joint public engagement initiative by the Concord Coalition, the Budgeting for National Priorities Project at the Brookings Institution, and the Heritage Foundation, created for the purpose of explaining in plain terms why budget analysts of diverse perspectives are increasingly alarmed by the nation’s long-term fiscal outlook.
(Note: The author disclaims any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)
On February 19, I read a Chicago Tribune article by Jessica Levco entitled “Change he can believe in.” Levco talked about Bernard von NotHaus, creator of the controversial Liberty Dollar. In her article, the reporter writes:
Von NotHaus said he created the Liberty Dollar because he contends the U.S. dollar isn’t backed by anything — though the greenback is issued by the U.S. government.
“Because he contends the U.S. dollar isn’t backed by anything.” Hmmm. This week’s quote is by none other that the United States Department of the Treasury, which says on its website that…
Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. This has been the case since 1933. The notes have no value for themselves, but for what they will buy…
Back on February 12, I wrote about underwater mortgages (owing more that the house is worth) in the post “Turning Japanese.” I said:
Earlier today, Reuters reported that more than 30% of U.S. homeowners who bought in the last two years owe more on their mortgage than their house is currently worth, according to housing market research company Zillow. Chris Sanders wrote in “Third of recent buyers owe more than home’s value: report” that 39% of homebuyers from 2006, who placed a median 10% down payment on the property, are now underwater (owing more than the house is worth). 30% of those who purchased homes in 2007 also have negative home equity, Zillow said in its quarterly home value report. Overall, less than 1% of all American homes are underwater at this point in time.
The next day, I came across a Bloomberg piece by Kathleen Howley entitled “Americans Selling Homes See Prices Go Below Mortgage.” She wrote:
By the end of this year as many as 15 million U.S. households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc. That may fuel an increase in foreclosures, erode prices, and increase mortgage bond losses, he said in a Feb. 1 report.
Today, Reuters reporters Julie Haviv and Jennifer Ablan said in “One in 10 home loans is under water: Economy.com” that nearly 8.8 million homeowners, or 10.3% of American homeowners, are underwater, according to Moody’s Economy.com. As a result, they said, millions of U.S. homeowners have an incentive to abandon their properties.
Edmund L. Andrews and Louis Uchitelle wrote about the rise of the underwater people in the New York Times today. In “Rescues for Homeowners in Debt Weighed,” they said:
Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody’s Economy.com…
Andrews and Uchitelle added:
For Americans caught in a mortgage trap and owing more on a home than it would sell for, consumer spending and confidence are the most immediate casualties, Mr. Curtin reports. But the damage goes deeper.
People cannot move easily to jobs in other cities if they have to sell their homes at a loss. The $168 billion federal stimulus package is likely to be less effective than intended because many homeowners may simply use their government checks to pay down their debts.
Even worse, Mark Zandi, chief economist at Moody’s Economy.com, predicted home values will continue to slide in the near future. This past Wednesday, Reuter’s Haviv and Ablan said in “Economy.com sees home prices down 20 percent” that the “rapidly deteriorating U.S. economy will cause home prices to drop by 20 percent peak-to-trough,” according to Zandi. In addition, the co-founder of Moody’s Economy.com is also predicting a recession in the first half of this year. According to Reuters:
Zandi, speaking at the Reuters Housing Summit in New York, said this is a “significant” change from the Moody’s Economy.com outlook published in December, which called for a 13 percent drop.
On the outlook for recession, Zandi said:
Three months ago, I expected the economy to skirt a recession. Now, I expect it to suffer a recession (in the) first half of 2008. To be more precise, the economy is contracting. It’s been contracting for December, January and probably February. Another three, four, five months of contraction and that would be a recession.
Last Sunday, I wrote in “Where Have You Gone, Joe McCarthy?” that:
“Our nation turns its lonely eyes to you.” Not really… but I wonder what the Senator would say if he found out the U.S. government may be taking a page out of the Soviet playbook when it comes to suppressing information from the American public. No, this isn’t conspiracy mumbo jumbo. On March 1, 2008, the federal government will be shutting down the Economic and Statistics Administration’s website EconomicIndicators.gov, due to “budgetary constraints.”
Critics of the move argued that the Bush administration was trying to hide economic data from the American people. Now, the website reads:
The U.S. Department of Commerce’s Economics and Statistics Administration (ESA) has decided to continue the economicindicators.gov website. Featuring the economic releases from ESA’s Census Bureau and Bureau of Economic Analysis (BEA), the site was started by this Administration in 2002 to give greater awareness to these economic statistics. ESA initially planned to discontinue the service due to cost concerns but given the feedback ESA received, the decision has been made to continue the site and improve its functionality.
Sorry for that comparison with the Soviet Union. Friends?
This past Wednesday, Associated Press business writer Ellen Simon wrote “Workers see inflation-adjusted earnings fall 1.2% for year” in USA Today. Simon reported that inflation-adjusted earnings for the average American worker have fallen 1.2% over the last year, according to the Bureau of Labor Statistics. Higher food and fuel costs have contributed to this erosion in purchasing power, she said. According to the BLS, real earnings (earnings adjusted for inflation) fell in 8 of the last 13 months and were down 0.5% in January compared to the previous month. Dean Baker, co-director of Washington-based research group the Center for Economic and Policy Research, said:
A lot of people have lost a huge amount in their homes, jobs aren’t being created at a rapid rate and wages are falling behind inflation. Workers, in this environment, can’t keep up their consumption. It’s bad for them as far as their living standards, but this is also a serious source of drag on the economy.
Baker told the AP reporter that a consumer pullback in spending could offset Washington’s economic stimulus plan, “But we’d be in even worse shape without it,” he added.
According to Ms. Simon:
Average weekly earnings were $592.74 in January, or roughly $30,800 a year. While that’s about $1,000 a year more than workers averaged in January 2007, inflation has increased at a rate of 4.3% for the same period, outpacing the 3.2% earnings gain.
At the same time, I am not a fan of the “official” consumer price index (CPI) measure because it was heavily manipulated over time (especially during the Clinton administration), with methodological changes that understate inflation. I prefer using the “traditional” measure of inflation (pre-Clinton), which can be calculated by adding 7% to the “official” CPI number (per John Williams’ Shadow Government Statistics), and leaves us with “real” inflation of around 11.3%. This high rate of inflation could explain why I am encountering comments like the following on a much more frequent basis in my everyday research:
I’m confused, everybody keeps telling me the economy is great and I’m not suffering by paying 50% more for my food, clothing and everything else while my pay stays the same. Who should I believe, all those experts or my empty bank account?
According to Reuters earlier today, Daniel Bouton, the chairman and CEO of French bank Société Générale, said that the U.S. economy is in a recession already. The head of one of France’s oldest banks said, “There is a recession in the U.S. for the early part of 2008.” This follows a statement yesterday by the second largest bank in Europe, Swiss-based UBS, which also pointed out the the U.S. economy is in recession. According to Reuters, UBS economists said that a weakening consumer sector, in conjunction with problems in the housing and credit markets, have pushed the United States into a mild economic recession. In a research report yesterday, UBS economists responded to questions of whether or not a recession had taken hold in the U.S. by stating, “It’s not coming, it’s here.”
The Swiss bank predicted that U.S. gross domestic product will fall 0.60% from the end of 2007 to the middle of 2008. Reuters’ Richard Leong noted that last month, the U.S. government said the economy grew at an annual rate of 0.4% in the fourth quarter of 2007 and expanded 2.2% for the entire year, the weakest pace in five years. UBS is predicting that the contraction will be led by the first decline in personal spending since the recession of 1990-1991.
Growing up in the Chicago area, I learned early on that most people work from an “angle.” The Urban Dictionary defines this as, “A plan or way of doing something, especially making a good sales pitch, implying that the person knows exactly what he or she is doing or saying.” It seems to me Washington policymakers have an “angle” when it comes to the tax “rebate” checks as part of the Economic Stimulus Act of 2008. Washington has been quite silent when it comes to explaining where it will get the money to pay for its $168 billion “stimulus” package. It appears they want us to believe this is somehow free money. No way. Who, in this day and age, still believes in a “free lunch?” Apparently, quite a few people. Consider the following headlines:
“Free Money: Feds to distribute rebate checks to millions of taxpayers”
-USA Today, February 13
You could receive a tax rebate check for a few hundred dollars by May as part of a government effort to stimulate the economy. But is this free money really free?
Yes. The IRS says the tax rebate money does not have to be paid back. Period.
-WATE 6 (ABC) News (Knoxville, Tennessee), February 14
Oh, there will be pay back all right. Yesterday, the editorial board of the Telegraph Herald (Dubuque, Iowa) wrote “Handouts won’t help U.S. economy in long term.” Leave it to Midwestern sensibility to figure out what’s really going on with these tax rebate checks and “stimulus” plan:
OK, here’s how we’re going to fix the lagging U.S. economy — read carefully: We’re going to borrow a whole bunch of money from China and give it to Americans. Then Americans will go out and buy things, most of which will have been made in China. That’s the plan to help our economy, remember. Boosting China’s economy is just a fringe benefit. For China.
They continued:
So, the government’s solution is to encourage Americans, who spend too much and save too little, to spend more?…
We need a big-picture plan that involves something besides handing out borrowed money. The Congressional Budget Office reports the deficit for the current budget year will jump to about $250 billion after the stimulus package checks are cashed.
Giving out money we don’t have to people who aren’t saving enough as it is may be a good way to win votes. But it won’t do much for the long-term health of the U.S. economy.
