Stimulating Questions

Was the economic stimulus plan a flop?

Marti Feldstein, a Harvard economics professor and former adviser to President Reagan, thinks it was. He figures that people only spent about 12% of their checks. The rest went into savings. Many dispute his methodology, but probably true that less than a quarter was immediately spent. The rest may have gone to pay bills or pay down credit cards.

If that’s the case, we sure didn’t get much of a bang for our $100 billion. But this analysis fails to consider how many people manage their money. If they paid off their cards in May, it’s likely that they’ll run them up again by November. They may have temporarily reduced their interest payments, but those balances will be coming back. If so, the stimulus checks could be the gift that keeps on giving.

These lagged effects are often missed when people try to figure out the economy. I think Professor Feldstein is wrong to give the stimulus a failing grade. At worst, it should get an incomplete.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T20:50:13+00:00 August 14th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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