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It was, of course, the late U.S. Senator Everett Dirksen, R-Illinois, who said, "A billion here, a billion there, and pretty soon you're talking about real money."
Well, given globalization and the passage of time, maybe we should amend that to 'a $100 billion here, a $100 billion there'.
The U.S. Treasury's $700 billion bail-out intended to stabilize the financial markets could take an already high U.S. Government budget deficit to truly astronomical -- and some say unsupportable -- levels.
The deficit, which the Congressional Budget Office in its most recent forecast (pdf) said will total $407 billion in Fiscal 2008 and $438 billion in Fiscal 2009, could exceed $1 trillion next year, if U.S. Treasury Secretary Henry Paulson's plan is passed as outlined, says economist Richard Felson.
In additional, the national debt -- the deficit accumulated over the decades -- would rise above $11 trillion.
"The calculation is based on a majority of distressed assets being recorded in the next year, and Congress probably will authorize the U.S. Treasury to do that," Felson said. "If the asset purchases are spread out, next year's deficit would be about $750 billion or $800 billion, but these are still enormous sums, effectively doubling the budget deficit."
Larger deficit will have policy, economic consequences
Could the United States service the debt? Yes, Felson said, but serviceability does not mean there won't be financial consequences. First, long-term interest rates would rise, he said, as would inflation. Second, the bailout's spending would tie the hands of the new U.S. president and Congress, restricting his ability to address other issues, such as health care, education, energy policy, and defense needs, among others, Felson said.
"How much money would be left to address other problems? Not much. That's not the framework you want a new Congress and president to start in," Felson said.
The dollar would also likely fall, Felson said. "I'm not a currency expert, but my sense is adding $600 billion of $700 billion in government debt would not boost the dollar's value," Felson said. "That will reduce the attractiveness of U.S. investments."
Is an assistance package likely to pass, in Felson's view? Most likely, he said, but with changes to protect the taxpayer. "Congress will likely add a substantial equity-sharing provision to increase private sector collateral required for these government purchases, as well as loss mitigation clauses, oversight powers granted to the General Accounting Office (Congress' budget watchdog), restrictions on executive pay, and homeowners' assistance to reduce foreclosures," Felson said.
But the bailout's biggest question will be left for the new Congress and president. "They'll leave how to pay for all of this up to the new Congress," he said.
Economic Analysis: The bill's foremost goal is to keep the credit markets operating, and Congress has not lost sight of the demands of the 'right here and right now'. But close behind will be the bailout's fiscal and economic consequences, and how to address them. With passage, the U.S. budget deficit will balloon to levels (as a percentage of GDP) not seen since the 1950s.
In sum, the deficit increases by too much, too soon, which suggests a tax increase is the first order of the day for the new Congress and presidential administration. That's not the best welcome present for the new governing officials, but it will be up to the American people to decide who's to blame for nation's worse financial crisis since the Great Depression.
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Reader Comments (Page 1 of 1)
9-24-2008 @ 2:51PM
paul said...
Why don't they bail out these institutions with a clause that they will pay back the Federal Government with part of their profits until the loan is paid back, now that makes sense!, watch the dollar fall making oil more expensive, what about the states, counties and cities, who will bail them out????????????????????