You’ve done it now! Finally, you the consumer has decided to slow your roll so to speak. You are not spending as much, in part because you can’t borrow as much. This is a good news, bad news story. There’s a lot to be said about these issues, but for now let’s talk about the economic stimulus ideas being tossed about to get you to spend (consume) more quickly.
Consumption, meaning the buying of goods and services by the consumer account for roughly 70% of the output of the U.S. economy. We didn’t go quite as crazy shopping during the last holiday season as they would like to have seen. And even if we could, it’s a lot harder to borrow money against our homes, or sale our homes and take away a little cash. The result is a major concern for a continued slowdown in spending which will ensure a slowdown in the overall economy and a recession that may be too entrenched for proposed short term fixes.
The most discussed idea to stimulate your spending is some type of tax rebate. The idea is to get money into the hands of the people who will spend quickly and thus provide an economic stimulus that spending multiplies through the economy. The people that are deemed to be the quick spenders are the poor to middle income Americans. This very idea could lead to an entirely new discussion, but we won’t go there now.
This idea of a tax rebate is old fashioned fiscal policy. For many years now the role of managing our economy has been relegated to the Federal Reserve Bank (FED) decision makers. Active fiscal policy has been seen as a bad thing by many of the financial leadership of the country and not openly endorsed by the current administration unless it suited a particular agenda. My concern is that leaving that role of managing the economy to the Federal Reserve may be part of the reason we are having our problems today.
I don’t recall managing the economy as one of the charters given to the Federal Reserve with it’s creation with the Federal Reserve Act of 1913. However, I can say with certainty that the Federal Reserve is charged with regulation and oversite of our banks and “money”. The meltdown in the banks and “money” instituations have led to our current problems in the economy. How or why did the FED let it happen