Every so often, CNN Money releases a handy visual showing how much money has been devoted to “economic stimulus” — starting from December 2007 when the hapless efforts to avoid recession began. I like to post it here. As you can see, so far more than $11 trillion has been promised for economic stimulus efforts. Kind of makes the recently passed $789 billion look pretty paltry. I’ve been saying it for months: Most of our economic stimulus spending is not being passed in large packages. Most of it is adding up with $100 million here and $1 billion there. Also, look who the biggest beneficiaries are. Ben Bernanke has been vowing to help the banks, and the government certainly has been throwing plenty of money at them.

What do you think of these economic stimulus efforts, and where the money is going?

Tomorrow, President Obama will address Congress. He will talk about the economy. But what I’m really looking forward to is Thursday’s preview of the 2010 budget. This is his first budget as president, and Barack Obama insists that what he puts into place starting in 2010 will result in cutting the deficit in half by 2013. (But it’s still a $500 billion a year deficit.)

It’s a laudable goal. But is it possible?

While full details of the budget won’t actually be hammered out and released until April, there is still a lot of interest in the possiblities. On the heels of a massive economic stimulus spending and tax cut package, what sorts of things can be done in order to curb spending and raise revenues. I think you know what’s coming. I expect some of the following to be addressed on Thursday (and maybe even tomorrow):

• Pulling back on the Iraq War.
• Allowing the Bush tax cuts to expire.
• Making small increases to the capital gains tax.
• Cutting some “wasteful” government spending (however that is defined).

I’d like to think that this could work out. After all, I voted for Obama in part because I believe that focusing more on the middle class, providing a new method of health care, and focusing on job creation through improved infrastructure and a greener energy economy, are important measures and ultimately more beneficial to a prosperous economy than policy that is based almost entirely on tax cuts — and those mainly for the wealthiest. The bottom line is that Obama largely inherited this mess. And while I don’t agree with everything his administration is doing to try and fix it, I do think that those involved are on a slightly better track than the previous administration.

It’ll be interesting to see what happens in the next few days, weeks, months and years. And it will be interesting to see whether Obama’s “fiscal responsibility” promises end up being more believable than conservative “fiscal responsibility” actions that we’ve seen a great deal of since the 1980s. (After all, it was the Reagan Administration that popularized the practice of “acceptable” deficit spending.)

Do you think Barack Obama can really cut the annual deficit in half by the end of the current presidential term?

image credit: U.S. government.

When I wrote about the personal finance measures in the economic sitmulus package, one of the items I mentioned was a tax credit for the sales tax on a new car. One of the commenters, Jane, thought it would be interesting to see whether or not the tax advantage was worth it. So I thought I’d do a very simple work-up of how things might have played out had we bought a brand-new Prius instead of the used Prius and taken the tax credit.

In our area, a new Prius costs, at the low end, $24,538. We would get a tax credit for the sales tax, which is 6.65%. So, our tax credit would have been $1,631.78. Now, after a year, according to Kelley’s Blue Book, the 2008 Prius is worth $22,495 retail, a difference of $2,043. Any trade-in or private party arrangement would be worth even less.

We, on the other hand, got a 2007 Prius for $14,997. Just the difference in what we financed renders the paltry tax credit Totally Not Worth It. To be fair, we did get the car so cheap on a pricing error. The dealership actually wanted to sell it for $18,599, but some yahoo listed it online for much lower — and we called them on it. The Blue Book value for the 2007 we got is $19,020. Obviously we got a screaming deal (yes we pulled the Carfax). But even if we had paid what the dealer wanted, it still would have been better to get the used car. It’s only a couple of years older, and the interest savings for the auto loan would have been tremendous — more than able to overcome the “value” of the tax credit. I suppose if we had decided to go with a new stripped-down model of some other car, the tax credit might have been worth taking. But we wouldn’t have the car we want.

If you can find the right deal on a new car — and they are out there — the tax credit can be a nice bonus. Since we were hooked on the Prius, it just didn’t make sense for us. But I can see where some car brands — especially a Kia or something in that vein — would be a great deal with the tax credit added in.

Personally, I think that if Congress was going to give out this tax credit to stimulate businesses, they should have allowed everyone to write off the sales tax. Honestly, how many people can afford a new car right now? How many people can get approved for the loan they’d need to buy a new car right now? Not very many, I’m thinking.

What about your situation? Would you be better off just buying used rather than buying new to get the tax credit?

Yesterday, President Barack Obama signed the economic stimulus plan into law. Whether or not you agree with it, it’s pretty much a done deal. And whether it works or not, two main things will be remembered about the politics of the economic stimulus bill:

1. Obama forced the Democrats to make concessions to the Republicans, even though they didn’t actually have to.
2. Almost no Republican (none in the House) voted for the bill even after the concessions.

This means that GOP partisans will either be remembered as stubborn obstructionist fools or visionary principled heroes — depending on whether the American public thinks that this economic stimulus bill did the trick. You can start making your own assessment for your personal finances today. Here are some of the things that are most likely to affect you personally:

• Starting in June, most people will start to see around $13 a week in their paychecks as part of the new tax credit. This might help you buy a few more things. But, in terms of meaningful spending or debt reduction, it really won’t be all that helpful. I, however, would save or invest it. That $13 a week, in the right place, will add up big time and yield substantial returns down the road.
• Child tax credit ($1,000) will now be offered to more families that don’t make enough to pay income taxes, and the EIC will be expanded to included more low-income families with three children or more. If you are struggling — especially because job loss may have changed your situation — this might be helpful to you.
• Those of us subject to the Alternative Minimum Tax (don’t get me started on this silliness) in the middle-class and in the upper-income class will not have to worry about it for now. But I’m sure that it’ll be back.
• $8,000 tax credit for first-time homebuyers who buy between January 1, 2009 and December 1, 2009.
• If you bought a new car this year, sales tax is written off. (Too bad I bought a used car.)
• If you have a child in college, you could see tax credits of up to $2,500 for 2009 and 2010 to help pay education-related expenses.
• For those who make green changes to their homes — energy efficient air conditioners, furnaces and windows — there is a 30% tax credit up to $1,500.
• Unemployed folks get help with COBRA premiums for nine months, as well as not being taxed on the first $2,400 received in unemployment benefits.

And, of course, there are a number of measures in the economic stimulus bill designed to help the poorest Americans, bring aid to higher education, benefit scientific research, improve infrastructure (”shovel ready” projects that could provide jobs), encourage more alternative energy development (which could make energy efficiency more affordable for more people in the long run), and education spending for elementary and secondary schools. More funding for police departments and work in the environmental sector will also be given. All of the above has the potential to help with job creation, as well as lay a foundation for a more innovative economy down the road.

Now, of course, it is time to see whether this all works well enough to make up for the tremendous amounts of debt our government is racking up (most of it going to China as debt holder) in order to pay for all of this economic stimulus spending.

With a compromise in the works for the economic stimulus bill, I have decided to reflect on one of the biggest lessons learned during this recession: There is a definite disconnect between what’s good for the economy and what’s good for individuals on a personal finance level. Our economy is not based on individuals making sound financial decisions that lead to their prosperity. Our economy is based on individuals making detrimental financial decisions that lead to their enslavement by debt.

We have an economy that based in large part on consumer spending — and not just any consumer spending. Our economy is based mainly on debt-fueled consumer spending. And we’ve come to rely so heavily on this model of an economy that our leaders are telling us it’s “patriotic” to feed our consumerism — as long as we’re buying American. Indeed, nearly all of the tax incentives in the current economic stimulus bill are aimed at getting people to spend money they don’t have on stuff they don’t need. Even the individual tax cut touted in the economic stimulus bill, small as it is, has consumer spending as its goal. In fact, the reason our leaders are giving so little directly to us is because they don’t want us to save it or pay down debt. They want it to be a large enough amount that we feel reasonably good about it, but small enough that we will spend it rather than use it to our personal finance advantage.

Forget the economy; get your financial house in order

As “unpatriotic” as it sounds, I think it is time for us to force a change on our government — a government that is, at least, practicing what it preaches (borrow and spend, borrow and spend). Now is not the time to stimulate “their” version of the economy at the risk of destroying your own financial future. Instead, follow these basic personal finance rules to shore get your financial house in order:

1. Prioritize your spending. Look at what you are spending money on. Prioritize it. Make a plan. Figure out what is important to your financial situation, and spend your money in accordance with your personal finance goals.
2. Stop building up debt. I admit that I haven’t done this particularly well; I just bought a car. But it’s been more than year (when we bought our house in September 2007) since we bought anything else using debt.
3. Pay down debt. Paying down debt is always a good idea — especially right now. You want to free yourself from as many debt obligations as possible.
4. Build up savings. Building your emergency fund, as well as long-term savings, is a good plan to help you prepare for the future. You never know what might happen.
5. Check your insurance. Make sure your coverage is adequate for your needs, so that if something does happen, there’s a better chance that you won’t be financially devastated.
6. Prepare yourself for job loss. The Dems were forced to scale back their job creation hopes from 4 million to 3.5 million in the economic stimulus bill compromise. Millions of jobs have already been lost, and more are likely to be lost — even if we all go out and spent a bunch of money. So update your resume, do some networking and look for alternative income streams.
7. If you can, make some investments. If you have the available funds, make some carefully chosen investments. These can be of varying degrees of riskiness, depending on your tolerance level. Keep contributing to your retirement account (but check its holdings). Personally, I am upping my investments in companies that are fundamentally sound and have potential for future growth. I’m also looking into renewable and alternative energy related companies, since they should be getting a boost down the road.

Do you have any other advice for getting your financial house in order?

I’ve been busy today. We got some great snow, and I admit that I’ve been making playing in it with The Boy a priority. At any rate, as I enjoyed sledding and building a snowman, the Senate passed its version of the economic stimulus bill and Timothy Geithner, the Treasury Secretary, revealed a bank rescue plan. As you might guess, the opinions on both are flying. So I thought I’d do a bit of a news roundup of today’s economic goodness. (Free From Broke has some great coverage of the basics of both.)

Economic stimulus bill

The Washington Post offers basic coverage of the economic stimulus bill.

Coverage from The Huffington Post.

American Rivers thinks the economic stimulus bill is a good idea.

BloggingStocks shares some of the “pluses” of the economic stimulus bill.

Michelle Malkin blasts the bill for its vast amount of pork.

The Economic Populist offers its view the Senate only made things worse.

My Two Dollars believes that some of the tax measures in the bill are a bad idea.

Finally, I thought this question, on Generation X Finance, about financial advisers as part of economic stimulus, intriguing.

Timothy Geithner bank rescue plan (admittedly, it was difficult to find anything positive about this one)

The L.A. Times offers coverage of the bank rescue plan.

MarketWatch has the entire text of the remarks Timothy Geithner made this morning.

Stock Market Funding reports that the stock market did not respond well to the bank rescue plan.

Stock Trading To Go laments the lack of details in Geithner’s bank rescue plan.

Over at the Banks.com Mortgage Blog, I point out that this bank rescue plan is just more money spent on “economic stimulus” that isn’t really subject to public debate.

Naked Capitalism thinks that the bank rescue will be a fiasco.

Arohan makes the argument that the bank rescue plan could work.

Geoff Gannon has a detailed look at the plan, and he doesn’t think it’s that bad.

John Taplin likes the idea of an Aggregator Bank in the rescue plan.

What do you think about the economic stimulus bill and/or the bank rescue plan?

Last week, the House passed an economic stimulus bill. This week, the Senate is working on modifying it so that they can vote on some version of it (and then reconcile with the House folks). Setting aside the argument that maybe the money could be just as well spent if it were given to people, do you think that the economic stimulus bill is any good?

Vote in the personal finance poll below and, if you are so inclined, leave a comment sharing your views.

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One of the big questions that many people — including myself on CNN Money — have been asking is this one: How much would we get if the bailout went to taxpayers instead of banks? We’re funding this bailout, so it is no surprise that people are getting a little anxious about who is getting this money. And how they’re using it. So, here is the answer that CNN Money came up with:

Answer: $9,718.49

To arrive at that figure, CNNMoney.com took the total of the bank bailout, $700 billion, and added that to the proposed stimulus spending in the House of Representatives bill, $819 billion. That totals $1.519 trillion.

We then divide that number by 156.3 million, which was the total number of U.S. filers in 2008.

So: $1.519 trillion divided by 156.3 million equals $9,718.49 per U.S. taxpayer.

Now, this figure only includes the latest two large economic stimulus bills (the one in Congress now and TARP passed last autumn). The real number spent on economic stimulus measures so far — most of it benefiting banks and some of it going to pay for executive bonuses and perks — is something right around $7.2 trillion. And that’s without the economic stimulus bill currently being considered. So, with a little quick and sloppy math, you can take that $9,718.49 and multiply it by seven and get pretty close with this estimate: If all of the economic stimulus spent so far had been giving to taxpayers, each would get right around $68,000.

How much could you do with $68,000? You could pay down debt, set money aside for savings, and do some consumer spending. (Of course, part of that stimulus is the money from the tax rebate received, so I suppose you can subtract the money you got last spring from the total.) The benefit increases in number slightly if you look at households instead of taxpayers: According to the Census Bureau, there are about 126 million households (as opposed to 156 million taxpayers).

What’s the excuse for not splitting the money amongst taxpayers?

Even though it is obviously too late to recall the trillions spent already, close to $10,000 would be quite helpful. But we won’t get it. CNN Money also answered the question regarding why taxpayers will be lucky to see only the possible tax cut included in the current economic stimulus bill:

But the government is looking to have that money get spent and to have it multiplied somehow. Our economy is based on people spending money. So people saving money doesn’t help.

And there you have it: Instead of helping us completely makeover the economy, our leaders are set on keeping the current model of growth through (unsustainable) debt-fueld consumer spending. Personally, I find it heartening that more Americans are becoming interested in saving. Also, it is worth noting that paying down your debt isn’t any more helpful to the economy, either. Although I contend that if more Americans were able to pay down debt, it would prevent some banking problems through fewer defaults. It’s sort of a trickle up effect.

Of course, just giving us all between $15,000 and $50,000 apiece to begin with would have been cheaper. We could have paid down credit cards, made a big enough mortgage payments to qualify for refinancing and loan modifications, and maybe even bought cars (you know, a couple thousand down and then 72-month financing). All of this would have freed up all sorts of resources for us to be spending again — just like the government wants.

Now, don’t get me wrong: I’m not a big fan of any bailout. But I do wonder if — since the money is going to be spent anyway — it would be less wasted coming back to us rather than going to fat cats.

What do you think? Should the bailout money be given to taxpayers?

Last night, the House passed its economic stimulus bill, sans Republican support. Quite honestly, I am disappointed. Mainly because the few really good ideas in the stimulus bill have been completely watered down by a bunch spending that does little more than perpetuate that status quo of throwing money at the problem. Of course, the economic stimulus bill battle isn’t over yet: The Senate is working on its (more expensive) version, and there will have to be a reconciliation version to bring the two versions together.

Not that anything is really going to make a big difference. At this point, what’s another $800 billion or $900 billion? Or even $1 trillion? We’ve already spent more than $7 trillion on economic stimulus — most of it going to “rescue” banks and other large institutions.

So, what’s in this stimulus bill?

Simply put, a great deal of spending that is likely to turn out to be ineffective. Here are some of the highlights of the economic stimulus bill — and what I think of them:

• Taxes: Homebuyer Credit. There will be tax benefits. First of all, that $7,500 first time homebuyer credit that was supposed to be repaid, no longer has to be repaid. That’s nice. They should retroact it to 2007 (so I get the credit for my home) and expand it to include any homebuyer and anyone who refinances.
• Taxes: Cuts. The other big tax thing — included as a sop to the Republicans who didn’t vote for the bill — was a tax cut. I think the tax cuts are a horrible idea. First of all, these tax cuts are not big enough to make any real difference. Is $500 or $1,000 going to prevent anyone’s foreclosure? No. And, because this tax cut is spread out over two years, and in the paycheck, it amounts to around $20 or $40 per month. Is that going to change your household budget dramatically? These tax cuts do nothing to advance the stated goals of preventing foreclosure and increasing consumer spending. Secondly, taxes will have to be raised again — just as we the people get used to this nice tax cut. Seriously, on a political level, down the road this is suicide.
• Infrastructure Projects. I like these. I like the idea of a smart grid (our infrastructure is woefully out of date), improving mass transit options, developing renewable energy (since this will be more cost efficient than fossil fuels in the long run) and bringing our technology up to date through expanding broadband services. These things will provide new jobs and allow more people access to the global economy. Unfortunately, these measures are only a small portion of the economic stimulus bill.
• Schools. I think education is important, and the money spent on secondary and higher education should (if properly directed) be money well spent.
• Bank rescue. It’s not really in the economic stimulus bill overtly, but you know more money is going to be thrown at banks through TARP and other channels. Timothy Geithner has promised to make banks rescue a priority, and I’m sure the continues costs of economic stimulus will be seen in emergency loans and what-not. After all, we didn’t spend more than $7 trillion so far through massive stimulus packages. Most of the economic stimulus will be spent a little here, and a little there, effective masking the true expenditures from the American public.

Honestly, and I’ve been saying it for months now, if our government is going to spend our money (and it will) and if we’re going to pay it back (with interest), they should just give the money directly to us. If economic stimulus had originally been $500 billion for infrastructure and other projects plus a nice fat payout for each household (not person — household) in America, many of the stated goals of our leaders would have been met. And it would have cost a helluva lot less. Foreclosures prevented. Credit card defaults prevented. Consumer spending through the roof. A possible foundation for a less extreme economy built on saving (although that might be a little too much to ask for). An individual economic stimulus would have put money back into banks and benefited the American people directly. It’s our money. Give to us and let us spend it as we please. Even Jon Stewart sees the merit in this:

But it is not to be. Everyone talks about the merits of tax cuts v. government spending on big projects, but the bottom line is that for the economy we have, and for the goals our leaders have stated, neither is very effective option.

Here is some more information on the economic stimulus bill:

• The Wall Street Journal breaks down who gets what from the economic stimulus bill.
• Frugal Dad laments the exorbitant cost of the economic stimulus bill.
• Free From Broke insists that government handouts like this discourage innovation.
• Personal Dividends explains why, in his opinion, the economic stimulus package is a disaster.

Really, about all you can do at this point for your personal finances is put together a budget, live in a frugal manner, and choose careful investments to beat inflation (because printing this much money is going to cause craaaaaazy inflation).

What do you think of the economic stimulus bill?

Right now, deflation is a concern for the economy. Prices are falling and credit is restricted. However, the government is on the verge of a massive economic stimulus package, and that means that more money will be injected into the system. More money means that the value of your dollar — its purchasing power — is reduced. When we start getting flooded with dollar, it means inflation is a very real possibility.

Protecting yourself from inflation with TIPS

If you want to preserve your purchasing power, you can make investments that protect against inflation. One of those investments is in Treasury Inflation-Protected Securities (TIPS). These represent government debt (and there will be plenty of that to go around soon) that is guaranteed to keep up with the rate of rising prices. Your return is guaranteed to keep up with inflation so that your buying power isn’t eroded.

Of course, the yield is still pretty low, keeping you about even, but at least you aren’t losing anything. Another government debt vehicle that protects against inflation is the I-bond. Remember, though, that any investment carries risk. Even though government debt is considered “safe”, there is still the chance of default. If you feel like the U.S. government (and state and local governments) is likely to collapse and default on its debt, bonds are not for you.

If you are more adventurous, many people use commodities — especially gold — as hedges against inflation.

You can find out more about TIPS and invest in them at TreasuryDirect.

Disclaimer: I am not a financial or investment professional. Any information you get from this site is not intended as advice. It is likely to be incomplete, and it may not apply to your individual circumstance. With investment, there is always the risk of loss. Do your own research, consider your situation and/or consult a professional before making money decisions.