My retail shop

The $600 rebates have arrived!

With housing dropping off a cliff, food prices soaring, and gas closing in on $4 a gallon, the US government has decided that an extra $600 will solve our economy’s problems. After all, 70% of GDP stems from consumer spending, so the more money we’ve got to spend the better, right?

Wrong.

The mere idea that $600 could get Joe America out of the fix he’s in is laughable. According to Money Zine, the average US household has $8,000-$9,000 in credit card debt alone. At an interest rate of 19%, $600 would only cover a few months’ payments. That is, of course, if we assume Joe America wouldn’t just plunk the whole $600 down in one go.

In light of this, it’s difficult not to see the rebates as a PR move and nothing else. It’s certainly difficult to believe the Feds are genuinely concerned about us, when you compare the rebates to other recent handouts.

Bush’s Stimulus Plan will pay out $168 billion to US citizens. In contrast, the Federal Reserve-a quasi-governmental body- just paid out $230+ billion to Wall Street banks in the last two months alone. And this comes on the tail of billions of dollars more that were pumped into the system in 2007.

I know, the Federal Reserve paid out that money to prop up Wall Street so we wouldn’t have a systemic financial collapse. But it’s difficult not to see the Stimulus Plan as just another pay out to Wall Street. Many Americans are simply going to use it to pay off credit card debt- thus channeling the money to the banks.

Of course, that’s just my opinion. And in the end, where this money will go is up for debate. So rather than trying to predict where the rebate money will end up, it’s far more useful to examine what kind of impact $600 could have for the average American. I’ve detailed Joe America’s income and expenses below.

INCOME:
? Average annual US household income: $48,000

Annual income after taxes (25%): $36,000

HOME:
? Average US home price: $200,000
? Average monthly mortgage payment: $1,381
? Annual mortgage payments: $16,572

Annual income after taxes and mortgage expenses: $19,428

FOOD:
? Average weekly food expenses: $341
? Annual food expenses: $17,732

Annual income after taxes, mortgage expenses, and food expenses: $1,696

ENERGY:
? Annual Energy Expenses: $4,421

Annual income after taxes, mortgage expenses, food expenses, and energy: -$2,725
Of course, this is hardly a crystal clear account.

For one thing, my mortgage expenses assume a 10% down payment. In reality, a large chunk of the mortgages originated in the last two years featured down payments dramatically smaller than this.

On top of this, my food expenses are a bit extreme. Few families that I know consume $300+ worth of food per week. However, even if we lower food expenses to $150 per week, the average household income would be down to $6,000 after energy expenses. This leaves monthly disposable income at $500 per month.

So an extra $600 would only add one month’s worth of discretionary expenditures.

Bottom line: $600 isn’t going to do anything for the US economy. And anyone who believes it will needs some serious stimulation to their brains. The US has been in a recession for months. And it’s looking worse than the recessions of 2001 or 1990.

My suggestion? Save your $600. And start saving as much of your income as you can.

Best Regards,

Graham Summers

http://www.gpscapitalresearch.com

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