by Daniel Costello

Dwayne Callender from Laurelton, N.Y. has a question that we continue to get quite a bit.

Why is the money used in the bailout not going directly to people when they keep hearing stories about declines in consumer spending and the slumping housing market. To summarize, why can't the government give money directly to citizens to combat the impending deflationary cycle? This would also assume that the money or rebate given to households would be in the form of a debit card to encourage spending and avoid saving it in a bank account. This would prevent some of the issues raised when stimulus checks were issued and some people such as myself just put the money into a savings account. Also I never quite saw what the final estimate was on the cost of the original stimulus package (around $150-$200 million if I remember correctly) for what was essentially a brief shot in the arm.

 

Dwayne, you raise a very popular question. And there are many folks inside and outside of Washington that are asking the very same thing. Not surprisingly, many of them disagree.

Federal Reserve Chairman Ben Bernanke — a Depression expert — and Treasury Secretary Henry Paulson convinced Congress and President Bush that it was more important to spend the $700 billion bailout cash on getting the credit markets loosed up rather than directly helping average folks out with their bills and mortgages.

It wasn't a popular choice in many places, of course. But "Paulanke" promised that unless Washington bailed out the banks, the economy would spiral so badly downward that we soon wouldn't be able to print enough money to help the banks, homeowners or anyone else out.

Hey, for every two economists, there are three opinions unfortunately. At the end of the day, it's really just a big bet and only time will tell who was right.

Meanwhile, the Feds said a few days ago that they may help out some homeowners on the brink of foreclosure soon. That is rife with difficult questions, not least of which is what homeowners who are paying their bills on time will say and do if the feds bailout some of those who took on risky loans.

One other update: Congress is likely to pass a stimulus plan soon that could include rebate checks to taxpayers like those that came earlier this year as well as funding for new infrastructure programs aimed at boosting jobs. The numbers floating around DC right now are anywhere from $60 billion to $150 in direct aid to taxpayers. It may not be $700 billion, but that's not chump change either.

Now all we have to do is figure out how we all are going to pay for this....