What if We SAVED Our "Stimulus Package" Checks?

Yesterday, I gave you a little Self Scoring "Financial Discipline Quiz" about what to do with your potential "Stimulus Package" check. Today, I'm feeling a little unpatriotic for that post, even though I'm convinced that my not so subtle nudge towards reducing your debt is solid advice. But obviously, if everyone with consumer debt took that advice, there wouldn't be much "economic stimulus," now, would there?

Now I'm sure that if the President or members of Congress developed a scoring system for my quiz, the methodology would be the exact opposite, with credit going only to those who SPEND their checks. And realistically, I have no doubt that more Americans will follow their desires than my advice... but that doesn't make it right.

America as a country has a miniscule savings rate - by some measures negative - especially when compared to other countries. I recently read the following on the Business Week website:

"Americans look especially imprudent when compared with their global rivals. National savings rates in Europe run around 20%, on average, while Japan saves around 25%. The International Monetary Fund estimates that China has a national savings rate of nearly 50%. Little wonder that Stephen Roach, chief economist at Morgan Stanley (MWD ), recently wrote that "America's saving problem is off the charts -- possibly the most serious imbalance in an unbalanced world."
So we are reliably expected to squander that little government windfall, and nationally, we probably won't disappoint. But what would happen if we had a national change of heart, and DID either pay down some debt or save, and furthermore began regular programs of debt paydown and savings. Now I know I am being wildly idealistic here, but I see many, many of my fellow personal finance bloggers who are doing exactly that, and we are helping others to do so as well. What if (gasp!) our efforts actually began to have some impact?

Well, in the short run, I have to admit that the "Economic Stimulus Package" would not be as stimulative. But in the long run:

1. There would be less subprime loans, if only because there would be less subprime borrowers... (you will never hear about a "prime loan crisis" :-)

2. Healthier savings rates would result in more domestic stock ownership, and perhaps less foreign investment in major US companies. Lately the stock market has considered it to be good news when foreign investors take major stakes in US companies. Do you agree? (but I digress)

3. The potential strain on our nations retirement system would lessen as social security could be looked at more as the safety net it was originally intended to be and less as a financial support system for a whole generation.

Well, that's just three effects I can think of off the top of my head. So who's scoring system will you use? Mine from yesterday or the opposition system from the government? Just remember the old adage about being really wary whenever you hear someone say:

"I'm from the government and I'm here to help you."
:-) Bob


Lily said…
I guess I view things a little differently.

1. There is a "prime loan crisis," affectionately known as the credit crunch. Because subprime burned the finance industry so badly, now even "prime" borrowers (AAA-rated companies that deserve that rating) find it hard to get funding. You could still blame this on the subprime crisis, but the players are different. When top-notch borrowers can't find funding for capital growth and business doesn't get done, we're looking at pretty dire consequences down the road.

2. Healthier savings rates wouldn't necessarily result in less foreign ownership of US stocks, either - not if people stick their money in savings accounts or refuse to invest in US companies.

3. Social Security will fail regardless of whether people save more or not, since the problem is that there are (relatively) fewer young workers whose FICA taxes will pay for the (relatively) greater number of retirees about to hit the SS payroll. I don't think people should save because it will restore SS to its original purpose; they should save because SS won't be able to provide a "safety net" when they retire.

I think it's a little cynical to say that the government's lying when it says it wants to help. I agree that the stimulus is kind of a stupid way to help, but it's not like the government is evil and wants us to fail. Congresspeople, the executive office, and apparently the Fed (even though Bernanke wrote an econ textbook) all need a lesson in basic economics.

The US is not in danger of saving too much, but there is such a thing. Japan, for example, actually suffers from too much savings and not enough consumption, which actually results in a sub-optimal level of investment and capital growth.
Bob McD said…
Dear Lily

Thanks for your response. I think you're right, it's primarily a different view you are bringing. In fact I agree with almost all of it, except:

I didn't predict (and don't think) that Social security will fail, I just mentioned that increased savings would lessen the strain on our whole retirement system. You rightly point out where that strain will come from. In my past writings, including a blog article I wrote on December 20, 2007 called "We Can't Let This Happen," I have advocated that boomers get their financial act together as much as possible so we won't be put at political odds with our children and grandchildren. What I DO think will happen to social security is some combination of increased taxes, reduction of benefits, and further tinkering with retirement ages, and retiring boomers should be ready to take that medicine. A less pleasant alternative for all concerned would be for the government to keep paying the benefits by basically printing the money and touching off a 1980s type round of double digit inflation.

I also didn't say the government is lying about wanting to help, but I've been through a lot of these stimulus packages in my lifetime and they're almost always too late to help. It's a necessary evil of the legislative process. It's actually a little encouraging that this particular congress that has been gridlocked on so many things came right out with a bipartisan plan. I guess you can tell it's an election year :-) Bob

Popular posts from this blog

It's Unwise to Compare - But It's Human Nature

A Dollar is a Dollar - Except When it Isn't

The Best Personal Finance Tip I Ever Gave (or Got)