This is a horrible, horrible idea.
It would take a while to explain why the American economy needs a recession, and of course it's never popular no matter how necessary it is because people don't like to lose their jobs. I perfectly understand. But, the economy needs one, and it will have one. Injecting $600 per person will only delay the inevitable and magnify the effect when the recession does come.
Furthermore, this entire proposition is being sold upon a lie. This is not a tax rebate. A tax rebate would require that we had surplus tax revenue that the government was refunding to us. We do not have a surplus. All tax revenue was spent last year, and billions more dollars were borrowed to pay for additional government spending beyond what our tax revenue was able to pay for.
This stimulus package is, in effect, a loan that the U.S. Government is taking out on your behalf, and then asking you to spend on products that you probably don't need, all in the blind hope that it will push us through the current turbulence. The turbulence is the result of the subprime mortgage disaster, which in turn is a function of the real estate bubble finally bursting. It is a bigger problem than it appears to be on the surface, however, because what lies beneath it all is that the Chinese government (primarily, with a couple of other big stakeholders) has invested vast sums of money (well over a trillion dollars) in U.S. treasury notes. As our real estate market heaves and collapses under its own weight, the Chinese are watching alot of their money vanish in the process. As the federal reserve lowers interest rates to get the economy moving, the Chinese are even more threatened, as this effects the return rate they're getting on their trillion-plus dollars invested in those T-bills.
China and the U.S. are now locked in a very damaging and frustrating relationship, as the Chinese are over-invested in the dollar and we are over-indebted to them. We are like two angry dogs locked at the mouth - neither of us is going to win, the first one to try and get out of the struggle will maul us both, and everyone watching is just glad they aren't one of us.
This stimulus package, is a gamble by our lawmakers to skirt around the problem. Lowering interests rates hasn't provided the punch needed to stop the recession. Lowering them further risks a Chinese withdrawal from the dollar, which in turn risks a collapse of the dollar and possibly the most devastating blow to our economy since the Great Depression. Honestly, some economists say it would be worse. So Washington has decided to try throwing money at the problem. However, borrowing $168 billion, most of which will come from China and most of which will be spent on products imported from China, will not make things better. It will create the illusion of things being better until people have spent through their checks, and then our real problem will only have grown larger.
In order to avoid an economic catastrophe that could have a ripple effect across the entire world, the U.S. and China need to work carefully and deliberately together to ween ourselves off of this codependent relationship. And the first step is that U.S. must recognize that a recession is due, and that we can't keep trying riskier and riskier tricks to avoid it. A recession now will be far less painful than a depression in two years - to say nothing of how the rest of the world will suffer if this situation collapses utterly.
Matt White
