Bribing Consumers to Save the Economy

The US and the UK are both consumption economies. No consumption; no growth. But how do you get people who’ve consumed too much to consume even more? They know they can’t afford to keep spending. And they know that going further into debt just makes the situation worse. What can you do?

You bribe them!

You give them more money, say, in unemployment assistance. Or, you give them a tax credit when they buy a new house. Or, you give companies a big tax break. In the most recent stimulus bill, for example, the feds do all three – including giving Pulte Homes a $450 million tax refund.

Here at The Daily Reckoning we never met a tax cut we didn’t like. But with the deficit at 13% of GDP, we might make an exception. One way or another, someone’s going to have to pay for the feds’ big spending stimulus efforts. Taxpayers. Bondholders. Dollar holders. All of the above.

President Obama told the crowd in Singapore this weekend that he would make sure Ben Bernanke stayed away from his helicopters. The Chinese are the biggest holder of US bonds in the world. The Japanese are next. Between the two of them they fund a big part of America’s current spending. Naturally, America’s president is eager to keep the cash coming his way. So he has had to reassure the nation’s largest creditor that their loans to the US will be repaid in good order…and good currency.
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