Recession Fears = Flat Screen TV?
Posted on January 22, 2008 by Melissa
Filed Under Debt, Savings, Taxes
On our way home from visiting family this weekend we decided to listen to news radio. They were discussing the economy and the stimulus plan being proposed to help ward off a recession.
Many experts are on the fence on whether or not a tax rebate will help prevent a recession. Regardless, it seems the general population is happy about the proposed rebates. They mentioned that some people’s reaction to the rebate news was that they hoped the money would arrive before the super bowl so they could go get a flat screen TV. Funny….yet frightening.
At the risk of over simplifying it, a recession means that overall spending slows down which means fewer jobs are created (or jobs are even eliminated). Fears of a possible recession can become a self fulfilling prophecy because people often cut back on their spending if they think there is a trouble ahead. Less consumer spending means fewer sales coming in for businesses, they begin to downsize, more people can’t find work or they become unemployed, they have even less money to spend, and the cycle begins.
Bush’s proposed tax rebate plan is meant to encourage us to keep spending by giving us a little more money in our pockets. Although I welcome the idea of getting money back I wonder if it will help the economy in any lasting way.
First, it takes time to issue a refund and get it in the hands of the consumers. It may come too late to make an impact when we need it to. I’ve heard that checks could come as soon as June and that it could take 6 months to a year to reach its full effect on the economy. I guess those super bowl parties will have go on without new flat screens. With the way the stock market has been tanking I can’t help but wonder if we need the help now rather than later.
I also think the rebate counts on the majority of people spending that money immediately so it gets pumped right back into the economy. It’s been said that targeting the rebates to the lower and middle classes would help the most because those households are more financially strapped and are more likely to quickly spend the rebate money. It seems to be expected that the majority of the population outside of the upper class won’t be saving this money. I understand why that’s the assumption (it can be harder to save when money is tight) but it still bothers me.
Are people going to look at this money as a windfall to be spent frivously instead of as a way to get prepared for a possible recession? Quite frankly, if I feel a recession is coming I’m more likely to put that cash into my emergency fund or use it to pay off debt. I certainly wouldn’t go buy luxury or non-essential goods with it. It would feel irresponsible to me even if that’s what the money was intended for. Saving for an emergency fund needs to be a priority, especially during an economic down turn when jobs become vulnerable.
Unfortunately, paying off debt or putting that money in savings may not be the best way to boost the economy even if it puts my finances in a better position to handle a recession. Hmmm. Does wanting to save that money make me a bad American? Of course not.
Could it be that what’s best for the economy may not be what’s best for your household?
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If I save the money, I will end up paying taxes on the interest eventually! :)
What’s best for you is most definitely not best for the US economy, at least not in the short term. Product needs to change hands, and you deciding ( wisely ) to save that money instead of sending it keeps products on the shelves.
Long term, your choice is wise for both you AND the economy, since you will have more money later. But in the short term, the interests don’t match at all.
I totally agree with the concept of paying off debt. If we have to go into debt to survive, the further we go down, the harder it will be to get back up.
I’m not sure the question is will we slip into a recession as much as it is will we slip into a depression.
I think the world is still confident that the US can spend money, I think the world (and our own investors) are worrying if we are adding any real innovation or productivity which in turn devalues the dollar since it’s based solely on our production.
Honestly a tax rebate is kind of ridiculous we need to cut the deficit and then prove we are number one again, perhaps by going to mars or something of the sort.
I think it makes you a smart American if you ask me!
I was having the exact same thought this morning. I for one welcome the tax rebate, but it will go in our emergency fund or toward our debt. No flat screens in my future
I also will use the majority of it (all but maybe $100) to pay off debt….the reality is when I feel my debt is either “manageable” or eliminated, I’m more likely to spend back into the economy at a later date. Right now, I spend nothing because I am one of the believers that we are in a recession and headed for a deeper one. It will go to debt elimination and an emergency fund….with very little going back into the economy at this point.
we can also blame recession problem on the cost of petroleum. everything is taxed and just about everything needs petroleum in some form or fashion-right down to the ink used on packaging.so anyway,when prices more taxes are collected. personally i look at any rebate from any government as their way of paying me for the loan i made to them with no interest earned. what is so frustrating is that i cannot do a thing about it. so, what am i gonna do with a rebate check…i am gonna bank it for awhile.
I don’t think you can blame a possible recession on the cost of oil. Oil costs so much because the demand is high ( we use a ton of the stuff ), and because the dollar’s value is in the tank.
Paying off debt and/or saving is a smart thing—because in the long run, it does stimulate the economy as well. Just not “instantaneously” as spending it.
If we are able to pay down our debt and credit, we can free up more money to spend later.
So it is a win/win, even if you save it or pay off debt. If it happens, ours will go to our house fund.
I really hope people don’t just waste this tax rebate on stuff. I did a post yesterday about 5 smart and 5 dumb things people can do with their rebate.
Well if people are patient, they can wait until the 09 super bowl to buy their flat screen. Do you think people have the patience for that? ;)
I agree with Llama money that in the long run saving will help both the economy & yourself.
However, I don’t think borrowing from other countries to pay a huge tax rebate is going to strengthen our economy in the world markets…although it may strengthen the economy of countries that make all the products that will be bought with the rebate.
We need a better way of determining the health of our economy besides just growth. We can’t grow indefinitely, and its possible to be stable & healthy fiscally without growing if we are self sufficient as a nation.
[…] to Melissa whose post Recession Fears = Flat Screen TV? was the inspiration for this […]
The Government will still get your money one way or the other, i wouldn’t worry! I think it’s wrong to ask consumers to start spending to prop up an economy that the government has lost all control of. It’s irresponsible because if people start spending beyond what they can afford, then this creates more debt problems, which feeds the problems with the credit crunch.