By Don Miller
As Senate Republicans and Democrats continue to bicker over the details of President Barack Obama's stimulus plan, Treasury Secretary Timothy Geithner waits in the wings ready to unveil yet another bank bailout bill.
But almost forgotten in the headlong rush to devise measures to create jobs and save the financial system is the total cost of the government's commitment to solving the economic crisis.
Bloomberg News reported yesterday (Monday) that the tally of U.S. government spending could reach as much as $9.7 trillion – enough to pay off more than 90% of the nation's home mortgages.
Already, the U.S. Federal Reserve, Treasury Department and Federal Deposit Insurance Corp. (FDIC) have lent or spent almost $3 trillion over the past two years and pledged another $5.7 trillion if needed. That adds up to almost two-thirds of the value of the entire gross domestic product (GDP) for the U.S. economy last year.
As astonishing as the number itself is a continuing lack of transparency in how and to whom the funds are being distributed.
"We've seen money go out the back door of this government unlike any time in the history of our country," Sen. Byron Dorgan, D-N.D., said on the Senate floor Feb. 3. "Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?"
Notably, only the stimulus package currently on the table – along with the $700 billion Troubled Asset Relief Program (TARP) and last year's $168 billion tax rebate – have actually been voted on by lawmakers. An additional $8 trillion is in the form of government lending programs and guarantees.
In fact, Bloomberg filed a federal Freedom of Information Act (FOIA) lawsuit against the Federal Reserve Bank Nov. 7 seeking to force disclosure of borrower banks and their collateral. Arguments in the suit may be heard as soon as this month.
Meanwhile, the spending goes on.
The Senate is to vote this week on a stimulus package totaling at least $780 billion that President Obama says is needed to avert a deeper recession. If it passes the Senate, it would have to be reconciled with an $819 billion plan the House approved last month.
Treasury Secretary Geithner delayed announcing his new plan for addressing the banking crisis, details of which were reported yesterday in Money Morning. The tab for that bailout is widely expected to total near $1 trillion.
But questions remain as to what effects the stimulus package and bank bailout will actually have on the economy, both near and long term.
The nonpartisan Congressional Budget Office reported last week that the measure is likely to create between 1.3 million and 3.9 million jobs by the end of 2010, lowering a projected unemployment rate of 8.7% by as much as 2.1 percentage points.
But the CBO also warned the long-term effect of that much government spending over the next decade could "crowd out" private investment, lowering long-term economic growth forecasts by 0.1% to 0.3% by 2019.
And simple mathematics calls into question assertions that another bailout will rescue banks teetering on the edge of insolvency.
Bank losses from the write-offs of bad loans and faulty derivatives add up to $1.5 trillion so far. Additionally, regulators are forcing banks to account for $5 trillion to $10 trillion worth of off-balance-sheet structured investment vehicles.
Given that banking rules require banks to keep assets on hand equal to 10% of those funds, banks will need as much as $1 trillion in the next year. Adding $1.5 trillion in losses means banks will need as much as $2.5 trillion in new capital to remain solvent under current rules.
"The banking system simply has no capital. All the money that's been allocated so far has been like pouring water into a bucket with a hole in the bottom." Satyajit Das, a credit expert from Johannesburg, South Africa, told MSNBC.
So is the $9.7 trillion pledged by the government going to be enough to pull the U.S. economy out of the fire? Who knows?
But here are a few facts:
- $9.7 trillion would be enough to send a $1,430 check to every man, woman and child alive in the world, Bloomberg reported.
- It's 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan.
- And it's almost enough to pay off every home mortgage loan in the United States, calculated at $10.5 trillion by the Federal Reserve.
Although economists have been throwing around words like "trillion" like it's nothing, $9.7 trillion is still is a lot of money.
News and Related Story Links:
As Stimulus-Package Debate Continues in Congress, New-Look Bank Bailout Plan is Set to Debut This Week
Troubled Assets Relief Program
Why the bank bailouts are doomed.
Money Morning Week Ahead:
As Stimulus-Package Debate Continues in Congress, New-Look Bank Bailout Plan is Set to Debut This Week.