Wednesday, February 04, 2009

Why stimulate before making sure the economy as a whole will enjoy it?

I just received a letter from one of those big banks that has recently received billions of dollars in official assistance, informing me that if I finance my purchases with my credit card my annual interest rate will be 17% and, if I enter into any default, 26%.
This in a country where there are no inflation expectations, the government is paying less than 1% on its short term borrowings, contemplates a close to a trillion dollar stimulus package and wants the consumers to spend more to keep the economy from falling.
For a consumer to finance the anticipation of any purchases at 17% would be an act of extreme irresponsibility.
For someone in default having to pay 26% will only guarantee to dig him deeper in the hole he is in. The only way to justify these extraordinary high rates is that they need to compensate for all those who should not have been given a credit line to begin with.
What is going on? Have we not learned anything? And why should anyone stimulate the economy before making sure that all the new green sprouts are not going to be devoured by some players in the financial sector?