Scared People Don't Buy

Back from a couple days with one of those "intestinal" things. . . .

Not generally a fan of Donny Deutsch--one of those pretty-boy, New York, Frank Gifford-types--but he sure did hit it on the head today in an appearance on CNBC.

The talking heads were arguing about whether the "stimulus" package will stimulate and bring us out of this mess. Argues Donny, "Scared people don't buy cars. Scared people don't buy houses. People are scared." Those are pretty close to the exact words. I would add that scared people don't even go to the mall, let alone buy anything there. They don't go to Disney or buy lattes at Starbucks. They wait an extra week or two before getting a haircut and, unfotunately, may not be as charitable.

And there's no doubt, folks are scared these days.

I agree with Donny that the government can posture and primp and spend all they want, but until Joe Sixpack has stopped being scared, he's never going to buy a new truck.

So my prediction? This "stimulus" bill will have no effect. (Did Pres. Bush's package last spring bring us out if this?)

Prob. is that this "stimulus" bill is only $790 bil. in a GDP that in 2008 was $14.58 tril. Of course GDP won't be that high this year. Even so, the most of the money in this bill will not be spent this year either.

Think of it this way. $790 bil/$14.58 tril=5.4%. What's happening is Congress is borrowing 5.4% of what we all produced last year in order to give it back to us. So we're all going to get, collectively, a 5.4% "raise".

If you got a 5.4% raise starting tomorrow (and remember, it would really only be a 2-3% raise in '09 bc of the back-loaded nature of the package), what would you do with it--assuming that Donny is right and the you are as scared as the rest of us are these days? Buy a new GM car? Eat out a couple extra nights each month at Ruth's Chris? Or save it, pay down debt, or chuck it into the 529?

There's no way that even those Bozos on Capitol Hill can make up for a consumer frozen by fear. We got burned when the dot.com bubble burst. Then the real estate bubble burst. Then the banking system collapsed.

Spending a bunch of money and calling it "stimulus" may get you re-elected in some parts of the country, but it's not going to get us to buy new cars again. Or RVs made in Elkhart, Indiana.