Dawn of the Geeks

People are complaining that this stimulus package is stupid because people will just pay off their debts thereby not actually putting the money into the economy.

Well, let’s think about that for a minute. Say I have $1000 in credit card debt and am paying $50 a month to pay it off. It will take me 20+ months to pay off that debt depending on the interest rate. Now, the government hands me a check for $1000. The debt is paid off and now I have $50 a month that is freed up to be spent however I want. So now every month I have some money that I can inject into the economy.

So really, it doesn’t matter what you do with the check. If you pay off debts then you’re freeing up cash either immediately or sooner than it would have been. Even if you had $2000 in credit card debt you still significantly cut down the time it will take to pay it off.

Then there’s the other camp that wants to save the money. Which is also a good idea. If you invest the money you’re putting the money into the economy directly. If you put the money into a bank the money is invested by the bank right back into the economy and you get a percentage of profit.

So no matter what you do with the money, more money will actually make it into the economy and grow. The only way the money won’t make it into the economy is if you cash the check and stuff the money into your mattress. You can invest it, the bank can invest it, you can spend it or pay off debts and free up your own money.

I plan on spending some and paying off debts with most of it. Which again, frees up capital so I have extra money to spend, save or invest every month.