Rewarding credit and punishing savings

"There are two things to aim at in life; first to get what you want, and after that to enjoy it. Only the wisest of mankind achieve the second." -Logan Pearsall Smith, essayist (1865-1946)

The federal government just cannot help meddling in the market and the affairs between buyers and sellers.

"WASHINGTON - The Senate voted Tuesday to give a tax break to new car buyers, setting aside bipartisan concerns over the size of an economic stimulus bill with a price tag approaching $900 billion. The vote was 71-26 to allow many car buyers to claim an income tax deduction for the cost of automobile sales taxes and interest payments on car loans."

And then the Senate wants this to stimulate home purchases, purchases of homes whose prices are still high from previous credit rewards by the government; "Sen. Johnny Isakson, R-Ga., is pressing for a tax credit of up to $15,000 for everyone who buys a home this year, at a cost of $18.5 billion. The pending measure would award a $7,500 tax credit only to first-time homebuyers."

What this bill will do is the same things that got us into a credit crisis. It will reward borrowing by giving buyers a tax deduction on loan interest while punishing savers by taxing interest earned. This is the same government policies that caused people to consume instead of save.

Savings is a good thing for the economy. It does not hurt the economy. It gives the banks a stronger balance sheet. The more savings in the banks, the more they have to lend, and the lower the lending rates. Savings only hurts the economy if someone puts their cash under their
mattress.

Congress is pandering to the lobbyists. Congress wants the consumer to spend because it raises sales taxes. Congress wants home prices to rise so the state and local governments can have more property tax revenues. The realtors want house prices to rise so they can get better commissions.

Consumer borrowing and spending does creates jobs, but at what costs? What are the unseen consequences of credit? History is filled with examples, but who learns from history?