Cash on the barrel

Saturday, Feb. 9, 2008 | 2 a.m.

Congress has passed, and President Bush will sign, federal tax rebates that are designed to stimulate the United States’ sluggish economy.

Recent reports about middle-class Americans’ struggles to overcome personal debt suggest that these rebates of up to $600 for individuals and $1,200 for couples actually might end up being used to cover basic living expenses, such as car payments or buying groceries. In other words, the rebates may not serve to jump-start the economy because they won’t prompt enough consumer spending on items that people otherwise wouldn’t buy.

Meanwhile, The New York Times on Tuesday wrote of people across the nation who are eschewing their credit cards and paying cash because of mounting personal debt.

About one third of the nation’s homeowners refinanced or borrowed against their homes during the past four years to finance day-to-day living expenses, the Times reports. The personal savings rate over the same period was minus 13 percent.

Certainly there is a large number of people whose financial woes are a result of living beyond their means. But it also is true that the prices of housing, health care, education and other necessary items have skyrocketed over the past decade. Just obtaining the essentials is now beyond the means of many.

From an individual standpoint, it usually is a wise financial decision to make purchases with cash instead of putting them on a credit card, and it also pays in the long run to put money into savings instead of spending it now. However, doing so may not do much to immediately stimulate the overall economy.

So the federal government is faced with sending Americans a mixed message: Save more for such needs as retirement and health care, but spend more on discretionary consumer items to keep the economy going.

Ultimately, it is up to Americans to find the middle ground. In the long run it will be good for our nation to have fewer people drowning in personal debt, but we’re bound to feel the pinch as we get there.