Stimulating Whom?

Economic stimulus checks have started to come out. How much will they help the economy?

The theory is that if recipients go out and buy more stuff, increased spending will ripple through the economy and raise everyone’s income a little bit. It’s estimated that every dollar spent is recycled about seven times before the effect wears off.

But if the recipients put the money in the bank, then the effect of the payment is minimal. So the question is, how much will be spent and how much will be saved? Economic theory would tell you that people tend to increase their spending when they get a permanent uptick in income. But a temporary windfall tends to get stashed away.

Current estimates are that about a fifth of the payment checks will be spent. If that happens, they should add a little more than 1% to the economy. That’s not a trivial amount. But it won’t solve all our problems, either.

Douglas R. Tengdin, CFA
Chief Investment Officer
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