As a Stimulus, Would it Work to Give Money to Americans to Cover Their Mortgage or Credit Debt?

BY busadmin  February 10, 2009 at 4:46 PM EDT

Credit card; photo by TheTruthAbout...'s, via flickr

Question/Comment: As a stimulus to the economy, would it work to give money to Americans to cover their mortgage or credit debt?

Paul Solman: Any spending is a stimulus. You might take a few minutes to read, as I just did, my response to a Business Desk question from my earliest friend (like the kids in Slumdog Millionaire, we were two of three musketeers). Here’s his question and my answer, from an October post.

It seems that in the original Obama package, a plan to issue debit cards to every American household WAS considered. There was also an op-ed in the Washington Post the other day urging this “gift card” approach.

But imagine the complications, the opportunities for fraud, the sheer logistical hurdles. The idea would be to get people to spend and thus stimulate, as quickly as possible. But here’s a comment off a post on the website of the conservative Mises Institute that gives a hint of the problem: “If the government gave out gift cards for people to spend only, I would start up a business that allows people to ‘buy’ cash. Charge them a small percentage then let them do what the heck they want to do with their money.” Several other commenters said they’d buy gold with the money.

MIT’s Simon Johnson, our guest vetter, sounds a dissonant note: I’d like to give people money. And if they choose to save it (or use it to reduce their credit card debt), that would be fine with me – remember that we have a pretty serious “balance sheet” problem in this economy (that’s economist-speak for some people having way too much debt).

When the fiscal package passes, there will be some money in the form of tax rebates/breaks. By all means pay down your debts – no one has a patriotic duty to overspend.

I don’t give investment advice, so I’m mute on gold.