Obama and the Economic Stimulus Check Issue

With no specifics presented, President-elect Barack Obama announced that he is working on a "costly" stimulus package to "jolt" the faltering economy. It will be early January before Congress sees this plan and financial traders are discouraged with the lack of details as the market continues to fall.

Obama said, "I want to see it enacted right away. It is going to be of a size and scope that is necessary to get this economy back on track." Other than saying he hopes to save more than 2.5 million jobs with this recovery plan, Obama gave little detail as he announced his economic team.

Benefit of a Second Stimulus Check: Immediate Gratification

So how would this second stimulus package benefit Americans? Obama stated that he wanted to see a significant check amount (upward of $1,000). If Americans do receive another, we most likely will see a recurrence of the previous situation. Immediate and personal benefits for individuals would be the main benefit. A creditcard.com poll found that over 25 percent of Americans planned to pay down debt with their first stimulus check and another 25 percent planned to save it. Of course, you still have the other 50 percent of Americans who planned to spend it. But due to rising costs of food, essential items, and gasoline, many found themselves using the check to off-set the unplanned extra costs.

A second stimulus check might work extremely well if they could be received prior to Christmas. With amazing deals in the retail world, the checks would most likely make a big impact. Retail sales are at their lowest in years and not expected to gain much momentum even with Christmas on the way. Because Obama said the earliest they could get the stimulus package together is January, you probably will not see an immediate impact on the economy with the checks.

Drawbacks to a Second Stimulus Check: More Debt

The drawbacks to a "costly" second stimulus package far outweigh any short-term benefits. The problem is not with a faltering economy but the basis of that faltering economy: the cycle of debt. America has become highly dependant on a cycle of borrowing and re-lending. So our money is no longer a hard currency but in a constant state of flux. We think of "band-aid" solutions for a hemorrhaging crisis.

$168 billion was the cost of the last stimulus package. We are going to see that come back to haunt us because it was borrowed to re-lend to citizens. If Americans had said "no" to the first package, our economy would have been more stable because that was $168 billion that had to be borrowed. And how does America pay down debt? Though taxpayer money.

Obama's stimulus plan, according to him, will be funded by higher taxes on oil companies. Again, this idea would come back to haunt us. What will oil companies due in order to keep profits? They will put the tax back on those buying gas. So enjoy the $1.77 gas while you can!

Most likely, the tax on oil companies will not be enough to cover the entire cost of the Obama stimulus plan, particularly if he is planning a bigger and more comprehensive package than the last $168 billion plan. The rest will come back from your checkbook around April 15.

President-elect Obama did acknowledge that very fact about the lack of funding in his press conference on Monday, Nov. 24: "American taxpayers are understandably concerned, if we already have a big deficit, and now we're added an additional stimulus, how are we going to pay for all that? The right answer is that we have to first focus on getting the economy back on track."

These vague words did not help the market much as the Dow is still at its lowest levels since 2001.

And if you are concerned about the auto industry, you will have to look elsewhere for help. Obama had harsh words for the industry and chastised the executives for not having a clear cut recovery plan when they testified before Congress. Ironic, I must say, considering the ambiguity in his plan. However, Obama is riding both sides and says he will support an auto industry bailout once the companies present a plan that satisfies the government's requirements for lending taxpayer money.

The best thing we can do right now is ride out the storm. It will be tough for a while but think about it from an historical perspective. The Great Depression was a horrible time but America came through it and improved. As a debt-driven economy, we will have to take our lumps when they come. And if we do not learn our lesson now, we will continue to repeat history. We have lived above our means for far too long and it takes a recession to remind us of that fact.

Sources:

http://news.yahoo.com/s/nm/20081125/pl_nm/us_usa_obama_56

http://www.biblemoneymatters.com/2008/07/a-second-stimulus-check-is-it-on-the-way-and-is-it-even-a-good-idea.html

http://www.huffingtonpost.com/max-keiser/why-you-shouldnt-spend-yo_b_98812.html