Rebate Checks Go Out Tonight: Too Little Too Late.

The much anticipated rebate checks start going out today. In fact, over the next few weeks $110 billion will be sent out to the American public. This week, only electronic deposits will occur with paper checks being sent out later. There seems to be a contingency of people who believe that this is enough to turn the economy positive and avoid a recession. I’m not sure how that will be the case since our employment situation is precarious at best.

“NEW YORK (CNNMoney.com) — Tax rebates are starting to arrive in bank accounts. But many economists doubt that they will keep the economy from recession.

The stimulus package, passed with overwhelming bipartisan support earlier this year, will give rebates to about 130 million Americans, costing the U.S. Treasury more than $110 billion. Married taxpayers earning $150,000 or less will get up to $1200 while single taxpayers earning $75,000 will receive up to $600.

But since the measure passed Congress, there have been growing signs that the U.S. economy has already fallen into recession.”

Of course given the state of the economy and that we are in an election year, this passed with very little hesitation. Yet the impact of this rebate will hardly do anything since our economy is $13.84 trillion dollars strong. The fact that Americans are spending themselves into the ground will not be stymied by $600 or $1,200. It will feel good no doubt but this is only going to add additional fuel to the already present inflation we are seeing.

The main goal of course from the administration was to get people out there spending since 70 percent of our economy is based on consumption. Yet this may turnout to be a harder goal to achieve:

With the rebate being electronically deposited into taxpayers’ accounts as soon as today, area residents said they are leaning toward saving for a rainy day or paying debt rather than making a big purchase.

“I know what the goal is for the stimulus, but I’m more than likely to invest it and try to make more money that way,” said Pinkie Shuler of Winston-Salem.

Trean Ellis of Denton said that she and her husband are putting their stimulus money toward a down payment for a home they are planning to build in Lexington.

“It may end up being a small part of what we need, but every bit helps in this economy with gas prices being the way they are and both of us commuting to work,” Ellis said. “It would be nice to buy a big-screen TV but we’ve got other priorities now.”

The rebate is part of a $168 billion economic-stimulus plan approved by Congress in February. The amount ranges from $300 to $600 for individuals and from $600 to $1,200 for couples, plus $300 for each child.”

People have larger issues on their mind and will probably use the rebate to pay off debt, save for a rainy day (which given our economy is today), and other priorities. In fact, people are already shifting their purchasing habits to daily necessities. Kroger and Wal-mart are gearing up for incentives to bring in rebate ready buyers to their stores:

“If big retailers have their say, every dime of your tax rebate will be spent. Many retailers are offering incentives to trade in rebate checks.

Grocery chains Albertsons and Kroger and department stores Sears and Kmart are offering consumers an extra 10 percent for every $300 gift certificate they buy.

Home Depot is going green, urging customers to stretch their tax rebate dollars by investing in energy-saving products. Some retailers, like Walmart, are even considering a plan to cash tax rebates checks at no charge.”

So they want you to come in and blow your money on things you’ll already be buying. The only question is, will people respond accordingly. Ironically, the timing couldn’t be worse given the summer driving season and practically dollar for dollar that rebate will be consumed by higher fuel costs:

“Gasoline nationally is in an accelerated upswing, having jumped to $3.58 a gallon from $3.50 in just the past week. In some parts of the country, including New York City and the West Coast, gas is already sporting a price tag above $4 a gallon. There was a pray-in at a Chevron station in San Francisco on Friday led by a minister asking God for cheaper gas, and an Arco gas station in San Mateo, Calif., has already raised its price to a sky-high $4.62.

In Manhattan, at a Mobil gas station at York Avenue and East 61st Street, premium gas is now $4.03 a gallon. Two days ago, it was $3.96. Why such a high price? “Blame the people at STOPEC (he meant OPEC) and the oil companies,” an attendant there told me.”

This is too little too late given the current housing debacle which has already erased $2 trillion in equity. Do people really think that this is going to stop people walking away from mortgage obligations in states like California and Florida where homes have dropped from $100,000 to $200,000 in one year? Enjoy the money in your account but make no mistake that this will do nothing to change the landscape of our economic troubles.

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