Should the federal government encourage more credit card borrowing?

No, and especially not with federal dollars.  Give them back to the people who earned them!  Many people use credit cards as charge cards and of course that is both a) efficient, and b) not where the problem is.  We’re talking about credit card debt as a means of financing consumption expenditures.  I am not sure what is the going credit card interest rate for the marginal borrowers who will be aided by this new change in the Paulson plan, but I believe it is over fifteen percent.

More spending today, in return for less spending in the future.  At a rate of, say, fifteen percent.  Or higher.  Think of our government as "borrowing" aggregate demand at a rate of fifteen percent or higher.  Of course our government can, on its own, borrow at a much lower rate of interest than that and then stimulate aggregate demand on its own, through state and local governments, or with a tax cut.  Maybe our government is afraid of damaging its credit rating but is it really a good solution to have its poorer citizens do the borrowing on their credit cards instead?

This is not the time to be subsidizing credit card expenditures.  And if our political discount rate is this high, I fear to think what other mistakes we will soon make. 


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