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5/16/08

AJC.com: US economy - party is over - Stimulus hopes misplaced - by Govind Hariharan

For the complete report from the ajc.com click on this link

Stimulus hopes misplaced - by Govind Hariharan

Millions of households started receiving their gift checks from the federal government two weeks ago as part of the economic stimulus package signed into law earlier this year. The checks are making their way into bank accounts as the U.S. economy struggles with a possible recession. Ever since the Great Depression, recession fears have brought about a populist response from the federal government in the form of rebates and other "gifts." Most recently, in 2001, as the economy entered a recession, tax rebate checks of between $300 and $600 were mailed out to about two-thirds of U.S. households. The underlying belief is that such payouts, especially to lower-income households, will stimulate consumer spending —- which accounts for the biggest chunk of gross domestic product —- and thereby boost employment and incomes as businesses rush to meet increased demand. But despite hopes —- and enticements from retailers offering free rebate-check cashing, coupons and added value to gift cards —- that cash-strapped consumers will go out and spend their windfall, in reality the tax rebates won't do much to help the ailing economy get back on its feet. The economy is crippled by a housing crisis and credit crunch of alarming proportions; debt-burdened households that are shopping more at Wal-Mart than at Target; soaring oil and commodity prices that are stoking fears of inflation; a softening job picture; a weak dollar that makes imports more expensive; and a volatile stock market. Consumers are seriously worried about their jobs and the economy. Any extra dollars that end up in their pockets will certainly not be used for discretionary spending.

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