Bernanke offers consumers $200B of what they don’t want

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How deaf is Ben Bernanke? With the US savings rate hitting a 14-year-high, the Fed unveils a $200B plan “aimed at boosting the availability of credit to consumers and small businesses.” While I hope this will be of use to businesses in need of it, consumers have already made it clear they’re not interested.

As Morgan explains:

The government is trying to inject liquidity in to the ABS markets for ABS comprised of auto loans, student loans, credit card debt, home loans, etc. The idea being that investors have not bought these securities because they have been unable to secure financing to purchase them through the private sector. The government will make financing available to those investors that purchase AAA-rated ABS to try to reopen the market and make more credit available to main street USA.

I guess the theory is consumers will ignore EVERY SINGLE PIECE OF ECONOMIC INFORMATION AVAILABLE and decide to buy stuff because the credit is now available. At a moment when we are losing (conservatively) 600K jobs A MONTH, who in his or her right mind is going to buy a new car, house, or hot tub? ESPECIALLY when prices are being pulled toward terminal velocity. If consumers did this it would be so far past irrational as to call it “insane exuberance.”

Dear Ben, a lesson from Marketing 101: In order to be successful a product has to fill a need in the marketplace. Consumers don’t want debt! Not only do they not want debt, they’re not going to spend the money they already have. So there’s no way you’re going to getthem to purchase stuff right now. Consumer behavior is now a lagging, not leading economic indicator. Consumers will start spending after — NOT BEFORE — the economy gets back on track.

Some would argue this means we are doomed. Consumer spending is what drives the economy, after all. Yes it does, but that doesn’t necessarily mean doom. The money in those savings accounts can still be put to work fixing the economy. How? War bonds.

War bonds? I hear you ask. Well, actually not war bonds but something much like them — call them recession bonds or super saving bonds or whatever. Sell bonds to ordinary folks again.

Here’s the nutshell: Once upon a time this nation actually had to raise money to pay for the wars it got into. The very real question of “how are we going to pay for that?” had a calming effect on many stupid foreign adventures but didn’t get in the way in case of an actual threat (see Pearl Harbor, US Response to).

But wait folks — that’s not all they’re good for!

In 1941, in an effort to control inflation, the U.S. Treasury began marketing the new Series E bonds U.S. Savings Bonds as “defense bonds”. The government used the hype of the war to market the bonds to the country as a way to raise money for the war, when in fact they were used to remove money from the economy to control inflation.

So here’s the case right now: People want to save & people want to improve the economy. The government is buying debt despite being basically broke (see Smoke & Mirrors, efficacy of). Selling special super-patriotic Super Savings Bonds (set ‘em at 4% — current highest saving account rate is 3.51%) would let people put their savings to work and give the government some vague chance of actually paying off that debt.

I have no doubt there are problems with my plan — huge intricacies I can’t even begin to comprehend. Maybe pulling out those savings would cause the banks to collapse? Oh, wait … already happening. I do know this much about my plan it makes more sense than — pardon the phrase — trying to sell sand to an Arab.

Purchasing = patriotism worked after 9/11. It won’t work now.

Constantine von Hoffman is a veteran business journalist who writes the blog CollateralDamage, a satirical look at marketing and business.