Regardless of your political party or ideological leanings, the notion of the federal government spending $2 trillion, adding to the national debt of nearly $11 trillion already, should make you stop and consider the staggering size of our national tab.
If the irony of using debt-based spending to solve a problem caused by debt-based spending has escaped you, perhaps these fun facts will put things into perspective:
- If you spent $1 every second, you’d have to keep spending for 412,000 years to get to $13 trillion. That means you’d have to start shortly after the time human beings first starting using stone tools and fire to get to $13 trillion today.
- $13 trillion in one dollar bills weighs 28 million pounds. That’s as much as 87 blue whales or 462 Statues of Liberty.
- If you laid 13 trillion one-dollar bills end-to-end they’d reach from the earth to the sun and back…five times over. That’s 946 million miles of greenbacks.
The amount we’re looking at now—roughly $2 trillion between the Secretary Geithner’s new bank bailout plan and President Obama’s stimulus package—isn’t small potatoes either. So what is $2 trillion?
- $2 trillion is bigger than the entire Gross Domestic Product of our neighbor to the north, Canada. In fact, according to the IMF, only Japan, Germany, China, the United Kingdom, France, and Italy have bigger total economies than the combined bailout/stimulus plan—all other countries on Earth have economies smaller than $2 trillion per year.
Then there’s the interest on this staggering debt, which isn’t exactly small. Paying the interest on the current $10.7 trillion debt cost Americans $451.1 billion last year alone. How big is that?
- That’s $1478 dollars in interest for every man, woman, and child in the United States.
- That’s bigger than the annual budgets of New York ($121.1 billion), California ($111.1 billion) and Texas ($83.8 billion) combined.
If you’re scared, upset, or disgusted by this, you can do something. Visit BeyondBailouts.org and tell your Congressman and the President what you think of the bank bailout and stimulus.
You can also click on the “ShareThis” button at the top of this post to forward these fun facts to your friends or share them on your favorite social network.
Correction: I originally listed the state budget of Texas as $167 billion, but that figure was not annual. Texas budgets for two years at a time, so the figure has been cut in half.
I have an expansion of my original “deregulatory bailout” plan for Detroit in The Detroit News today. I’m also quoted in their editorial on how energy policy needs to catch up with the auto industry’s – and, it seems, consumers’ (if polls are to be believed) – enthusiasm for electric cars. The Detroit News, by the way, remains the best place to get news on the industry’s design plans – see the box to the right of the editorial, for instance.
Here’s some insightful comments from Thomas Haynes, a friend of CEI’s:
There’s a very interesting debate that could be conducted on who’s the madam, who’s the john and who’s the pimp in the relationships between the executive branch, the legislative branch and the financial services industry, but only so much of that debate can take place on Internet.
I did, however, want to note to those involved in the debate over TARP that my experience as a borrrower, plus some candid comments from bankers, make it crystal clear that these public funds are not being deployed for the stated public purpose of making credit more available and more affordable and thus stimulating (or resuscitating) economic activity. The credit markets that we tapped were both flowing and reasonably priced shortly before the bailout bill. They continue to flow now, but they are no longer priced as reasonably. Credit spreads over benchmarks (LIBOR being the most relevant) have widened by 150 basis points since late September. Every banker I’ve spoken too confirms this, citing supply demand and cost of money factors. When you question the cost of money component, however, they begin to stammer once your make the point that either LIBOR or the fed funds rate, or some combination of the two, should be very precise indicators of the cost of funds for big banks.
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ACORN is speaking against it—maybe it will actually help! This past summer Congress passed “Hope for Homeowners” which took effect Monday. Distressed borrowers can now refinance into 30-year fixed mortgages with the backing of FHA. According to the Boston Globe,
To be eligible, the borrower’s home must be the primary residence; the mortgage must have originated on or before Jan. 1, 2008; and as of March 2008, an applicant’s mortgage payment must account for more than 31 percent of gross monthly income….The mortgage servicer must be willing to take a loss and write down the loan – insured by the Federal Housing Administration – to 90 percent of the home’s current appraised value. If the home is sold, the homeowner must agree to share any appreciation with the FHA and the refinancing lender. The program, authorized by the Economic and Housing Recovery Act of 2008, will be in effect through Sept. 30, 2011.
And yet, the used car salesmen on the Hill don’t want to let Hope for Homeowners or the changes to Mark to Market accounting have their effect. Instead, Pelosi is asking Blue Dogs to take one for the team and hope that defaulting on their “PayGo” promise won’t have the same result as “No New Taxes” did.
There are all sorts of people today who normally talk about free markets but who have got themselves into a tizzy over the failed bailout. We need to get one thing straight – the bailout was the wrong answer to the wrong question. To begin with, the plan was merely postponing the inevitable, as a letter in the Wall Street Journal pointed out this morning:
The lesson of past financial inflection points is that we must let the markets reallocate capital from less efficient to more efficient uses. The sad fact is that we need to go through a brutal process of resizing down our financial and real-estate industries. Actions to try to recapitalize doomed financial companies only postpone the day of reckoning, which will make matters worse as the Japanese learned in the 1990s.
Secondly, we have to ask how to protect future viable assets and investments, not just what we should do about past failed assets and investments. The bailout plan is exactly the wrong approach. It puts in them in jeopardy because not only does it tread down the policy road that led to the Great Depression, as Martin Hutchinson powerfully argues, but because real capitalism provides strict disciplines that actually provide better protection than government regulation. We will not succeed in protecting our children from a future financial meltdown if we merely put in place the exact parameters for it to happen again.
Markets are all about the efficient allocation of capital. As has been demonstrated on this page repeatedly, government caused the market to misallocate badly. If we go further and have government misallocate the capital by design, then we will have made one of the biggest missteps in economic history, worse than FDR and co, because we will have completely ignored the lessons of the great depression. A market correction is, in a very real sense, necessary. Government cannot bring that about.
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