The Federal Bailout Price Tag: Nearly Two Trillion Dollars and Counting
We are living in extraordinary times right now. College students will be studying the events from 2008 in economics classes 20-30 years from now. Some people don't understand the sheer magnitude of what is taking place right now, thinking that it doesn't affect them. It does. What is taking place right now will affect practically every person on the planet, either directly or indirectly.
It's quite something when you hear government officials say things such as "We need this bailout to avoid the second Great Depression" or "If we don't pass this bailout plan, the consequences will be truly dire for our country" or "We are the victims of financial terrorism". These are all real quotes that have been uttered by people over the last number of days. Great Depression Part 2? Surely that wouldn't be possible? Not in this day and age of globalization and technology?
All you have to do is look at the proposed bailout to know that something is seriously wrong right now. This is not some mild recession that we'll come out of in a couple of months. This is a once in a generation financial crisis that is completely reshaping the financial landscape. "Reshaping the financial landscape" .. these are pretty grandiose and dramatic words, but that is exactly what's happening right now. Long-established and storied investment banks are gone. The Fed is desperately trying to prop up key companies to avoid complete financial collapse. Central banks are banding together to inject liquidity into the system. If you aren't at least a bit worried about what is going on right now, you should be.
The amount of money that the government has both pledged to deal with the problem and wants to pledge to deal with the problem is now approaching $2 trillion dollars. Two trillion dollars! This is money that the government can't afford in the first place. Keep in mind that the US government currently has just under $10 trillion dollars in debt already - if you include unfunded Medicaid, Medicare and Social Security, then this number of much higher. Every man, woman and child in the United States of America owes over $30,000. Let's not forget - the governments debt is OUR debt. It's the people of the United States of America that owe the money at the end of the day.
A quick calculation shows that the total bailout is approaching $1.7 - $1.8 trillion dollars. This includes:
-the proposed $700 BILLION to buy "bad debt" from financial institutions so that they don't collapse
-billions and billions to guarantee the principal in money market funds
-the $85 billion dollar loan to AIG
-$87 billion dollars in repayments to JP Morgan
-$200 billion for Fannie Mae and Freddie Mac
-$300 billion for the FHA (Federal Housing Administration)
-$200 billion in outstanding loans from banks who borrowed through from the Fed
The Fed is also committing another $100 billion+ to Fannie Mae and Freddie Mac and spending billions to provide financing for the JPM / Bear Stearns deal. There may be some other billions that I am missing, but still - these numbers should scare the living daylights out of you by themselves. And this is just what the number is at so far - who knows what other boogeyman are just around the corner? And if there are boogeyman, how on earth will the government keep paying for it?
If you don't believe that these numbers are scary, then just look at how the markets are reacting. The stock markets are plummeting. The US dollar is weakening at an alarming rate. People are quickly moving their money to safe havens such as gold. Gold jumped almost $100 in just ONE day of trading last week.
Every day it seems as though there is another blow-up and more proposed "bailout" money from the US government. Will the US economy ultimately bend but not break? Or is this the end of an empire?
Filed under: The Economic Meltdown | General Market News | General Knowledge