Even before Obama’s team gets started, the bailout package tops $8.7 trillion in taxpayer commitments for loans, guarantees, and other goodies for businesses and distressed homeowners.
This includes:
- More than $1.5 trillion in Federal Deposit Insurance Corp. loan guarantees, including a $139 billion assist to the lending arm of General Electric Corp.;
- $1.8 trillion in cash, tax breaks, and loan guarantees doled out from Treasury to taxpayers, financial institutions, and credit companies;
- $300 billion for homeowners from the Federal Housing Authority;
- $25 billion to auto companies from a program overseen by the Energy Department, which is separate from the bailout proposal that failed in the Senate; and
- $5 trillion in new money, loan guarantees, and loosened lending requirements from the Federal Reserve Bank.
Asked how much taxpayers are on the hook for, Bianco Research President James Bianco said: “I just say you should use the word infinity, because nobody understands these numbers, and I would include the Treasury secretary and the chairman of the Fed.”
If you total in today’s dollars the cost of the New Deal ($500 billion), the Marshall Plan ($115.3 billion), and the Louisiana Purchase ($217 billion), and then add the race to the moon, the savings and loan crisis, the Korean War, the Iraq war, the Vietnam War, and assistance to NASA, you only get $3.92 trillion—not even half the taxpayers’ exposure today, Bianco states (Jeanne Cummings, Politico 12/16/08).
Nine rate cuts in 14 months and $1.4 trillion in emergency lending have failed to reverse the economic downturn. The Federal Reserve has stated that it will “employ all available tools to promote the resumption of sustainable economic growth.”
“The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,” stated William Poole, former president of the St. Louis Fed.
Fed chairman Ben Bernanke said he may use less conventional policies, such as buying Treasury securities, because his room to lower the main U.S. rate from its current 1% is “obviously limited” (Scott Lanman and Craig Torres, Bloomberg.com 12/16/08).
It is rumored that the Fed might sell bonds. Issuing interest-bearing debt would amount to the Fed re-financing the liability side of its balance sheet, explains Michael Rozeff, converting short-term debt (bank reserves) into long-term debt (its own bonds). “This deters the banking system from using all those reserves in an inflationary manner” (LewRockwell.com 12/16/08).
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