A Billion Here, A Trillion There

29 October 2008 at 1:55 pm 3 comments

| Peter Klein |

How expensive is the bailout? Where will the money come from?

Consider the numbers: $29 billion for the Bear Stearns mess; $700 billion to buy spoiled assets; $200 billion to buy stock in Fannie Mae and Freddie Mac; an $85 billion loan to AIG insurance; another $37.8 billion for AIG; and $250 billion for bank stocks. Hundreds of billions in guarantees to back up money market funds and to guarantee bank deposits. And who knows what expenses are still to come. . . .

How will the U.S. pay for it all? Answer: by borrowing — raising worries about how the country’s ballooning annual budget deficits and aggregating debt will affect the economy and financial markets. Some guidelines, such as interest rates and the ratio of debt and deficits to gross domestic product, suggest the new debt will be digested easily. But some experts think those guidelines are misleading, warning that obligations are piling up like tinder on a forest floor.

“This kind of accounting that the government does — if they did it in the private sector they would go to jail,” says Kent Smetters, a professor of insurance and risk management at Wharton.

From Knowldge@Wharton, which reminds us that there’s plenty more to come — a probable bailout of Chrysler and G.M., for instance. And who knows what else. Of course, the US government now has a $10.5 trillion national debt. “To economists, the most frightening fact is that the enormous cost of today’s financial rescues is just a drop in the bucket.”

Entry filed under: - Klein -, Bailout / Financial Crisis, Institutions, Public Policy / Political Economy. Tags: .

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3 Comments Add your own

  • 1. L  |  30 October 2008 at 9:15 am

    Can anyone describe the certain implications of theses economical policies to the our actual daily lives, such as what effects this will cause in the future?

    Please help me understand which candidate would benefit me the most economically?

    My blog is located at: http://mypoliticalinquiry.blogspot.com/

  • 2. F.  |  30 October 2008 at 1:04 pm

    That’s something that I’m very curious about. Someone once said me: “and if USA takes money from IMF? Would he also do what IMF says to do?”

    Anyway, I’m curious about the consequences of all these expenditures.

  • 3. Weekly Wisdom Roundup #4 | Simoleon Sense  |  2 November 2008 at 10:30 pm

    [...] The Bailout: A Billion Here, A Trillion There…. – Via Organizations & Markets- How expensive is the bailout? Where will the money come [...]

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