Tue, November 25, 2008
A Trillion Here, A Trillion There….
Bloomberg.com has toted up all the Federal commitments made to date to stabilize the markets and the figure, if correct, is staggering: $7.76 trillion.
The late Sen. Everett Dirksen would be livid if he were around, even though Dirksen probably didn’t make the remark most often attributed to him. But we’re definitely talking real money: $7.76 trillion is about half of the US annual Gross Domestic Product.
The full amount hasn’t actually been spent; rather, this is the total of all the guarantees, asset buybacks, and equity purchases made by various government agencies over the past year. The Federal Reserve accounts for $4.74 trillion, including $2.4 trillion in purchases of short-term corporate notes. The FDIC has committed another $1.4 trillion to guarantee inter-bank loans. It’s unlikely that these amounts will actually be spent, but it’s beginning to feel as though anything is possible.
By comparison, the savings and loan crisis of the 1990’s cost about $200 billion in inflation-adjusted dollars. Whatever the final tab is for righting the markets, it will be enormous. Although the risk of deflation is of greatest concern in the short term, I can’t help believing that the long-term effect of all this will be inflation. Current federal income tax rates, which are near historic lows, will surely be a distant memory in a few years. Plan accordingly.
