Bailout may cost trillions ... or not
Even if it adds up to $8 trillion, the final cost will be lower as US sells the assets it's now buying.
A trillion dollars here and there, and soon the US government's financial rescue programs start adding up to big money.Skip to next paragraph
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But how high is the cost, really?
One tally, which puts the Great Bailout somewhere north of $8 trillion, has been making the rounds in news reports, on websites, and on Capitol Hill. At that rate, some people ask if we could just use the money to cut every American a $26,000 check and kiss the recession goodbye.
The reality, however, is that the government really isn't committing that large a sum to rescuing the economy. The vast bulk of the rescue efforts are loans or investments – and will end up as a mix of gains and losses to government.
What's clear is that the Treasury and Federal Reserve have raised their own exposure to the performance of the US economy – in the hopes of reviving it.
"That's a calculated bet," says Brian Bethune, an economist at IHS Global Insight in Lexington, Mass. "In terms of the cost of the whole thing ... it gets down to how many of the assets have permanent reductions in value. It's hard to say at this point."
Even with all the intervention so far, the prices of assets such as houses and stocks have been falling in 2008, and the confidence of consumers and businesses has been shaken. The results are tighter credit conditions and cutbacks in consumer spending, which in turn have contributed to a rising tide of job losses.
The high-stakes strategy of policymakers for both President Bush and President-elect Obama is to spend big to stop that tailspin. The more successful they are, the lower the final cost of the bailout will be. But either way, they reckon this course is the least damaging one for the US economy.
A deep erosion of the job base would affect Americans for years to come and would have its own negative impact on US tax revenues.
Even if the final bailout tab is above $2 trillion, that in itself is not a threat to the value of the US dollar or to the US Treasury's credit rating, economists say. The great fiscal burden hanging over America is still the long-term cost of entitlement programs such as Medicare, not the cost of a single recession.
By some estimates, the unfunded promises for those social-insurance programs now exceed $56 trillion – far beyond any tally for financial rescues.
As for that $8 trillion bailout figure, very little of that represents actual spending so far, although it has become a popular talking point.