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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By |2014-09-03T18:36:18+00:00May 1st, 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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