The Mother of All Bailouts

Maybe it is me, but with all these huge numbers…a billion dollars here…a trillion dollars there.. my head was starting to hurt. I do not think I am alone with these worries. I believe that most people would agree they have a hard time comprehending the actual numbers involved. As one who is always curious and researching, I wanted to really see if I was overreacting to these huge sums of money being placed around and to the current economic crisis. I needed some way to put this into proper historical perspective. There have been numerous bailouts (bail out) throughout history's various economic crises. Now the lender of last resorts seems to be the IMF. The financial crisis or economic crisis whichever you want to use is of epic proportion. The current cost of the bail out now exceeds $4.6165 trillion dollars. Put it simply this financial crisis or economic crisis (bail out) is now the largest expenditure EVER In American history.

Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined: More interesting, was the speed at which the money was (printed) spent.

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

(Data courtesy of Bianco Research)

Any way you add it up…or calculate it, what we are talking about should even get an Ostrich upset. How can Inflation not be on the horizon?

What do you think?

Comments

[Bylo-:]

Yup, at least inflation if not HYPER inflation!

What to do? Who knows... maybe buy gold?

Apr 13 04:32 PM

[Alan Young:]

Thanks for the perspective!

It's sickening to see (once again) the cost of the two most despicable, useless, self-destructive blunders of the past: Vietnam and Iraq. But that's beside the point now, isn't it? The question is whether the current bailout is another one of those blunders, based on lies and greed like the other two; or whether it's filling a genuine need in such a way that will ultimately make the country more whole, like the New Deal (which looks astonishingly cheap now, doesn't it?)

We all have our suspicions, but much remains to be proven.

Apr 13 04:33 PM

[conceptwizard:]

The great Ponzi scheme that is the Western World’s economy has grown so big there’s simply no ‘fixing’ it. Flushing more debt through the system would be like giving Madoff a few billion to tide him over. Or like adding another floor to the Tower of Babel. To what end? The collapse is already here. The question is: How much do we want it to hurt? Using the public’s purse to finance ‘confidence’ in a system that is already kaput may delay the Day of Reckoning, sure, but at the cost of multiplying our losses. Perhaps fantastically.” Quote/Unquote.

There is only one way out declare "Force Majeur" default on US debt. Start new currency, eliminate the Federal Reserve, Treasuries print our own money. Start manufacturing again, increase immigration, Bring the over 700 military bases home, revamp medicare, fund social security with real money, and RUN A BALANCED BUDGET!

Apr 13 04:36 PM

[Jason Rines...:]

I agree with your solution, but until the gatekeepers are replaced (corrupt House of Representative members) we are going nowhere. The fleecing of the taxpayer has already occured, just waiting for the actual cheque from the French waiter for those $1,200 bottles of wine I didn't drink. I had bread and water but I guess sitting at the table made me culpable.


On Apr 13 04:36 PM conceptwizard wrote:

> The great Ponzi scheme that is the Western World’s economy has grown
> so big there’s simply no ‘fixing’ it. Flushing more debt through
> the system would be like giving Madoff a few billion to tide him
> over. Or like adding another floor to the Tower of Babel. To what
> end? The collapse is already here. The question is: How much do we
> want it to hurt? Using the public’s purse to finance ‘confidence’
> in a system that is already kaput may delay the Day of Reckoning,
> sure, but at the cost of multiplying our losses. Perhaps fantastically.”
> Quote/Unquote.
>
> There is only one way out declare "Force Majeur" default on US debt.
> Start new currency, eliminate the Federal Reserve, Treasuries print
> our own money. Start manufacturing again, increase immigration, Bring
> the over 700 military bases home, revamp medicare, fund social security
> with real money, and RUN A BALANCED BUDGET!

Apr 13 05:19 PM

[drbob66:]

"More interesting, was the speed at which the money was (printed) spent."

Yeah, who makes those printers? Or maybe the ink? I'd like to buy some of their stock.

As far as the spending goes...well, it's easy to spend money fast.

Apr 13 07:04 PM

[Celcius:]

Cetin you are so way off the mark:

"Once again, lets go back to the WW2 example. Deficits were at record highs in percentage of GDP, but that didn't prevent the huge post WW2 recovery."

The WWII recovery was because the US was 50% of the global GDP. And, our factories were untouched by war. We are now under 23% of the global GDP, and don't have many factories left.

"Deflation, not inflation is a concern, which means that deficits don't matter if they are used on tax cuts and stimulus, which help grow the economy."

Inflation is the biggest concern, because it will drive many American's into poverty due to rising prices. And, country's around the world that peg their currencies to the dollar face the potential of famine. Some country's citizens are down to one meal a day. What happens to them if you reduce the purchasing power of the USD by half. This will be very destabilizing globally.

"Reagan and George W. Bush both ran up deficits during bull markets."

Yes, the markets rose on deficit spending, rising inflation, and Alan Greenspan's cheap money. And, each new deficit dollar provides a reduced return due to the cost of servicing such a large deficit as a percentage of the GDP.

We are now in uncharted territory with massive Federal, State, Local, Corporate, and private debt. Do you really think that we can service the debt with high inflation? Interest rates will have to rise putting the brakes on any recovery. Also, consider that a significant portion of the federal stimulus is with short term bonds and will have to be refinanced. We are buying long and borrowing short just like the sub-prime debacle.

IMO we are rapidly headed toward national bankruptcy.

Apr 13 11:50 PM

[Hillsfar:]

We actually got something for the Marshall Plan. A revived Europe eager to buy from America.

We actually got something for the Louisiana Purchase. Huge swaths in middle of our country.

We even got a sense of national pride and science and technological developments and armaments improvements with the race to the moon.

The Savings & Loan Crisis should have been a wake-up call. But at least it was taken care of properly and institutions that needed to be taken over were taken over.

On top of the National Debt, the Iraq War costs, the looming Social Security crisis, the upcoming Medicare crisis, and people on welfare.... With 1 in 9 homes unoccupied, 1 in 10 homes in default or in the foreclosure process... With 8% unemployment and 15% in total when counting those who have had their hours cut or have given up looking... With 1 in 10 Americans on food stamps...

AND we also have to deal with a Fed printing trillions and these crappy bail-outs financed on debt to save Wall Street banks?!?

All this only serves to make the average person on Main Street feel like we've been had and that we and our children will be paying for it all forever.

Apr 14 12:49 AM

[Fighting Yoda:]

The author provided a lot of useful data, but did not link spending to inflation. Just because money is being spent on hair brained ideas, does not necessarily cause inflation. Inflation is caused by increase in total money supply in proportion to availability of goods and services - 'too much money chasing too few goods'.

Goods supply – we have excess capacity of everything -oil, cars, homes, everything. The suppliers remove capacity slowly and reluctantly only. The removed capacity for most part can be brought back online fairly quickly.

So the question is how do we define money - it is sum of Money supply + credit. Money supply (Cash+demand deposits) can increase, but if credit decreases - the total money actually can decrease. This is what is currently happening; of course burst credit bubble burst. Fed is trying to inflate the economy by supplying helicopter loads of credit- but it has failed to increase the credit - both lending and borrowing are significantly down. We have deflationary expectations built in now - all us should be readily realize that - is anyone expecting home prices or auto prices to rise? No. That is the easy answer to inflation/deflation conundrum. Once deflationary expectations are set in, buyers will not buy expecting prices to fall - hoping for a better deal or not making a bad investment. Another aspect is how does the money get transmitted to people - it is by increase in wages - but we see wages falling, in addition to job losses. So spending power is decreasing. If you further add the propensity of consumers to save now (we have some data showing increase in savings from -1% to +4% now) - this further reduces demand.

So we actually have too little money chasing too many goods.

TIPS the most authoritative referendum on inflation shows - inflationary expectations are only 0.6% for next 5 years.

In the short term all roads lead to deflation, down the road we will have major problems – currency, inflation, and some.

Apr 14 03:09 AM

[Bagsnatcher:]

4,6165 trillion USD! Sounds like dr Evil finally met his match but to be honest Andy. It is not money spent only money been made available to spend (in most cases). The TARP and TALP and PPIP and whatnot has got these money if they will be needed. To say that the money is allready spent is a great exaggeration, abeit you (US) have spent a great deal allready (AIG CITI BoA etc etc) Let us just balance things a bit by adding (if you could) "The cost sofar" and not what's been made available to spend. The 4.6165 trillion, afterall, might not be needed (fingers crossed)

Apr 14 03:10 AM

[User 395372:]

4,6165 Trillion dollars. Sounds like a remake of Austin Powers and dr Evil but to be honest this (if the calculation is right) must be money made available to spend (TARP TALF PPIP and whatnot) it's not a "done deal" yet.
If I told you I have another trillion in my pocket, should you need it in the states, would you then add that to the sum?
Andy the numbers are probably correct and all that but it's not really the cost of the crisis. NOT YET.

Better hopw you wont be needing all that money. If you do then yes there will be a large inflation. But you can stop this in it's tracks. I still believe you (the US) can

Apr 15 09:33 AM

[nova:]

Cetin Hakimoglu wrote:
" Once again, lets go back to the WW2 example. Deficits were at record highs in percentage of GDP, but that didn't prevent the huge post WW2 recovery"

There is a big difference between then (post-WWII) and now:
- The whole world (entire Europe, Asia, Russia) were lying in ruins. At the same, the USA came out as Supreme industrial country. The whole world was desperately depending on American industrial and economic might to survive. Everybody desperately needed American industrial goods.

- Now, American industrial might decinigrated to a "service & consumption" economy. Now America desperately needs somebody else industrial and manufacturing goods.

- To reclaim its prosperity, America will have to go to its post-WWII industrial capabilities.

Bailouts will not do any good. Keeping old, incompetent and corrupt management is a very bad idea. The big changes are urgently needed instead of just empty rhetoric based on lies.

Is it possible for America to reclaim a super-industrial status? Yes, it is possible but it will take a lot of political will, sacrifices and hardship.

Apr 22 05:11 PM