One team of ecomedics has done what it can. Ben Bernanke’s Federal Reserve Board monetary policy gurus dropped the Fed’s short-term interest rate another 0.25 percent last week, to 2 percent, and told its patient, the U.S. economy, not to look for still another shot in the arm.
We might do more for a few patients, since the banks in our care seem to be suffering from a reduced ability to function normally, but that is about it.
The other team has finally begun to distribute part of the $170 billion of medication it prescribed some months ago. If your income is less than $75,000, or you and your spouse earn less than $150,000, check your bank statement or your mailbox.
The first doses were deposited last week in the bank accounts of the 7.7 million taxpayers who have direct-deposit arrangements; paper checks will begin to arrive this week in the mailboxes of the 130 million who are eligible for this Christmas-in-May-June-July.
Individuals will receive up to $600 and couples filing joint tax returns up to $1,200, with families getting an additional $300 per child. Individuals earning more than $75,000 per year and couples with incomes above $150,000 will get less.
Some economists guess recipients will save the money, or use it to pay down credit card debt, and pay for almost $4 gasoline, leaving little to spend on new purchases. And, they add, much of what is spent will have little effect on the U.S. economy: It will go to buy stuff made in China.
Other economists are more optimistic. The National Retail Federation expects consumers to pump $42.9 billion into shops, boosting retail sales by a significant 1.5 percent.
Deals abound. Sears and Kmart, among others, will add 10 percent to the value of checks that are converted into gift cards. Wal-Mart, which took in 25 percent of the 2001 rebate, will cash checks at its 3,500 stores with no charge for the service.
Because rebates are aimed at lower-income households, discounters expect to be the principal beneficiaries if consumers do indeed part with a significant portion of their stimulus windfall.
If the doctors at the Fed and the White House don’t revive the patient, Congress is concocting still another treatment. When the House and Senate finally agree on details, and a reluctant White House signs on, billions will be headed toward the mortgage markets to help troubled homeowners, and toward home builders to help get them through what is one of the toughest periods they have ever faced.
All of these ministrations will have one of three effects. They will do just enough to enable the patient to remain in its current weakened condition, dragging along from quarter to quarter in subpar health, until its in-built body mechanisms restore it to complete health.
Or they will have no effect, and the economy will lapse into recession, which is what most Americans seem to be expecting. Consumer confidence is down, and almost three out of four Americans think the country is on the wrong track.
There is still another alternative. All of this medicine might just work. It is being administered at just the time when things are getting a bit better, which is when boosts of this sort have their greatest effect.
Developments we predicted on April 1 are moving ahead. Credit markets are thawing a bit. The banks are shoring up their balance sheets. In April they took advantage of improved investor sentiment to sell $303 billion of bonds, the third-highest month of all time.
They had already raised about $40 billion in new capital in recent months and sold off $160 billion of the $250 billion of highly leveraged loans made in connection with buyout deals. These funds didn’t come cheaply, but they did come.
Nonfinancial companies also returned to the market: Investment-grade nonfinancial companies issued a record amount of bonds last month. All of this has brought cheer to stock markets.
But economists worry the Fed has sown the seeds of future inflation by lowering interest rates too much. That has driven down the dollar and caused a flight from dollar assets into commodities such as oil and copper, which is why their prices have soared.
Cheap money means dear commodities. Note that the Fed’s hint at a pause last week boosted the dollar and caused oil prices to drop.
Confused? Don’t be. Just read the warning on the medications prescribed by economists: “The effects of this nostrum are uncertain and will vary depending on circumstances we cannot now foresee.”
