Merrill: Those rebate checks won't help

Merrill Lynch (NYSE:MER) says that the rebate checks that are about to hit those tens of millions of taxpayers won't help the economy avoid a recession. That makes sense. Most of the money will have to go to pay for gas.

According to Reuters, Merrill claims "The U.S. economy is in a recession and stimulus from a government tax rebate later this quarter will only temporarily stem a fall in consumer spending." Well said.

When the economic stimulus package was first conceived, it might have worked. But, things have changed. A lot.

Most of the money handed out by the government is likely to be spent on high food and fuel prices. That will hardly be an incentive for people to buy a new Cadillac or build a swimming pool. A taxpayer getting a check for $600 could use all of that on gasoline between now and the end of the year.

Another factor in the Merrill formula is that house prices may fall another 15% to 20% before reaching a bottom. People may simply put the money in their mattresses to make mortgage payments.

The rebate checks are good for keeping people's heads above water, but they are unlikely to increase consumer spending.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 newsletter.