Notes Thoreau:
I don’t really mind the feds giving us some money back, but if they’re just going to borrow in our name then it’s not much of a win. If your spouse came home and said “Look, I just got $600 from the credit card company!” would you give a high-five or note that you’ll have to pay interest on it?
To be fair, the government interest rates on long-term debt are a lot more attractive than those offered by Mastercard.
If you don't want the loan, then use the money to buy treasury bonds.
Are you sure about that? Is the cost in taxes and interest of this $1200 my wife and I will get going to be under the cost of a home equity loan for the same amount? I only ask because I plan to use to pay off Home Depot (gota love those no interest for 12 months deals) for some improvements for my kitchen. I have a sneaking suspicion that the loan I didn't ask for, will probably cost me more in the end than if I put it on my Visa.
I've also noticed that the vast majority of people I've seen talking about what they're going to do with the money say that they're going to use it to pay off credit card debt. Our family's check is going to pay off our revolving debt, and will also pay off a small chunk of my student loan. I realize that this is not the outcome desired by the powers that be. However, in our defense, paying off our revolving debt will free up about $100 a month from now on.
Paying off your revolving debt is a great idea, and a good example of the power of collective action, because, as Megan notes, you are thereby substituting an obligation with a 4% coupon for one with an 18% coupon.
Of course, thoreau and his friends believe that the United States is basically a protection racket which uses our armed forces to force foreigners to buy our 4% bonds. So if you buy that analysis, paying off your revolving debt makes you are part of an international criminal conspiracy, and the only moral approach is buy Treasury bonds with your rebate.
I concur that this is in general a bad idea. But let’s stick with the idea that all this will do is pay down the amount of debt outstanding. Is this really so bad?
If anything, our national consumer debt is raising serious risks of default in unsecured debt, which, would result in even greater declines in SIV’s, which if they collapsed, would lead to even greater write-downs and trouble from a continuation in the uncertainty in asset valuations.
On the other hand, is this then nothing more than a backdoor bailout of banks and owners of SIV’s?
Yes.
Can we all agree then that there are no such things as "Bush tax cuts", only "Bush deferred taxes with interest"?
Gabriel,
I agree in the long-term you are correct. However, if you feel you can ride out this type of foolish governance and will die before the music stops, who cares. Face it, a 55 year-old boomer is likely going to get his "tax-cuts".
The problem - a 30 year old like myself is getting deferred tax increases. If this is not generational warefare, I do not know what is.
"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world."
Thomas Jefferson
"We may consider each generation as a distinct nation, with a right, by the will of its majority, to bind themselves, but none to bind the succeeding generation, more than the inhabitants of another country."
Thomas Jefferson
"That government is best which governs the least, because its people discipline themselves."
Thomas Jefferson
The problem with this analogy is that the "rebates" are weighted towards the low end of the income scale, while it's the people at the high end who are ultimately going to end up paying off the debt. This isn't a loan--it's a redistribution from the upper and upper-middle classes to the lower and lower-middle classes.
>The problem - a 30 year old like myself is getting deferred tax increases. If this is not generational warefare, I do not know what is.
I'm 31 myself and I concur. Considering that Obama's support is biased towards the youth vote, is it too much to hope that (provided he makes it) he won't be beholden to the AARP (currently in HRC's corner) so that we might get some sensible fiscal policy?
Thanks for the link, Megan.
As to y81:
Of course, thoreau and his friends believe that the United States is basically a protection racket which uses our armed forces to force foreigners to buy our 4% bonds.
Wait, what? Maybe Lew Rockwell wrote something like that under my name, but I have never written that.
Of course, right now in heaven the original Henry David Thoreau is busy explaining that somebody else is writing all these things under his name on that newfangled internet.
And as an added bonus.. the debt-funded rebates will help drive down the value of the dollar, making our debts easier to pay back! Oh, and making everything more expensive.
For what it is worth I plan to use my $600 by putting it into my Health Savings Account. I'll direct it to Vanguard's prime money market fund. I figure I'm getting back $600 in my own money, taxes, reducing my tax liability by $600 X my Tax rate and providing my self with tax free growth and a hedge against inevitable expenses of old age. (I'm an old man.) Of course it would have been a hell of a lot easier if they wouldn't have taken the $600 in the first place.
macquechoux: a money market fund is a bad place for any long-term investment and earns less than the Treasury bonds that the government is selling to finance your rebate, so you are getting negative arbitrage.
thoreau: if you (or anyone else) checks out comments no. 14 et. seq. to the blog post at Unqualified Offerings on October 30, 2007 captioned "The Men Who . . . ," you will find that I have fairly and accurately summarized the views of Jim Henley, the sponsor of the blog where you post.
I was just visiting family and friends in a red state. Every time I mentioned the $600 loans from the Chinese, everyone around me turned purple.
I also assume more debt exacerbates the problem by further weakening the dollar, but I am willing to admit I could be wrong. But... Assuming our interest rates keep going down and we keep racking up more debt, aren't we ensuring the dollar stays low for longer?
A better metaphor would be a company in which my wife and I are part owners deciding to pay a large special dividend, which inevitably means the company will also need to finance some of its upcoming projects. (Still not a perfect metaphor, but much better). Not as pithy, but much less alarming.
Energy Independence now! When the president of the United States no longer has to beg a Saudi prince for cheap oil, our economy will improve long term. More nuclear power. Drill in Anwar. Make the government go green.
> the "rebates" are weighted towards the low end
> of the income scale
I thought it was the other way around:
- the lowest 40% by income get 20% of the rebates
- the highest 40% get almost 60% of the rebates
Markt:
Actually, I guess it depends on how you define "low end" and "high end." The upper 50% get more than the lower 50%, because (IIRC) about 40% of income earners pay no income taxes at all, and so only get $300/600. But the lower 10% will get more than the upper 10% will get--i.e., nothing. I guess the former is the more natural interpretation, so yeah, you're right. Thanks for the correction.
Regardless, the main point I was trying to make still stands: Whatever future tax burden results from this will be shouldered mainly by the top 10-15% of income earners, so for most people this really is mostly or entirely free money.
It's not like Visa giving you an unsolicited cash advance on your own acocunt; it's like finding out that Visa has given you an unsolicited cash advance on someone else's account (or, if you have a high income, that Visa has issued cash advances on your account to several other people).
y81 thanks for the advice, but...
I'm an OLD man that already has a number of medical conditions that seem to accompany the aged, and I feel that the day is coming in the near future that I will have to dip into my medical saving account despite having Medicare, supplemental insurance, and long term care insurance. My current view of the future is rather short term and a Vanguard prime money market is easy and convenient. (This line of reasoning helps explain why a lot of old men ware Sansabelt slacks, I suppose.) Because I started investing at a tender age I now live off my other investments and have always taken a long term view of investing and never worried too much about market ups & downs.
Again,thanks for the good advice.
Actually, if you have good credit and received one of those 0% check offers from your credit card company, you could arbitrage rates and store the cash in a CD, treasury note, or high-yield savings account, then pay off the balance before the introductory rate expired. As long as you pay off your balance before the rate re-sets, you've essentially gotten the card company to pay you for the privilege of holding their money.
The credit card company is betting you don't have the discipline to pay off the balance before the 0% rate expires; as long as they're wrong, you win.
The pertinent question is whether, as a nation, we have the discipline and foresight to make it pay off. I'm not optimistic, but it works in theory.