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Sunday, November 30, 2008

Other People's Money-Bailout Mania

Other People’s Money: Bailout Mania

In the consulting world, a baseline maximum is:  “If you have a problem that can be solved with money, you don’t have a problem, you have an expense.”   But at what point is the spending of money the problem itself?   

Let’s look at other US Government programs, wars and social programs, in terms of their “inflation adjusted” costs in 2008 dollars.      On the American Thinker    author Ethel C. Fenig lays out the cost of big government programs (wars, social programs, bailouts), based on research from the Jim Bianco, who works at the Arbor Research & Trading, Inc.    For more info    Who is the Bianco Research Service
?  Bianco Research specializes in investment research for the professional and institutional investor. Using "macro" analysis of the fixed income, equity, and commodity markets as a foundation, Bianco Research provides unique insights into the markets.   So what did Jim Bianco research show on these US government expenditures?

            The current Credit Crisis bailout is now the largest outlay In American history.   Jim Bianco of Bianco Research crunched the inflation-adjusted numbers. The bailout has cost more than all (italics added) of these big budget government expenditures - combined:

• 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 of historical US Government programs, wars and bailouts: $3.92 trillion

So just how much is the US and it’s G-20 partners spending on the massive bail out of the financial system mess?      The liberal leaning climate change advocacy Institute for Policy Studies has a new report out that estimates the cost is over $4 trillion dollars!  “The approximately $4.1 trillion that the United States and Europe have committed to rescue financial firms is 40 times the money they're spending to fight climate and poverty crises in the developing world,” according to the recent report released by ISP

Why would a group like the ISP be concerned about spending Other People’s Money?    Their concern is not from a conservative perspective of fiscal responsibility, but because the US and it’s G-20 partners are spending it on bailing out financial markets, not on climate change or global poverty.  

            Others estimate the spending binge and commitments by the US Government are even higher than $4 Trillion.   Deroy Murdock, writing in Human Events estimates that the US Government spending, loan guarantees, commercial loans and other financial bail out actions may total $8 Trillion before the spending spree is finished.

            “As president, neither Al Gore nor John Kerry could have gotten away with such aggressively socialist policies as the allegedly “conservative Republican” Bush administration’s dizzying parade of massive outlays, fiscal injections, equity purchases, mandatory subsidies, and even nationalizations.

These and other new commitments -- totaling a mind-blowing $8.347 trillion and counting -- assume that Washington should pump money into the economy. But it cannot do so without sucking money from the economy. Uncle Sam cannot spend a dollar without first extracting it from taxpayers or lenders, or by printing it in order to spend today the purchasing power that inflation will demolish tomorrow.”  Deroy Murdock, 11.28.08

            The United States estimated Gross Domestic Product (all economic activity for the nation combined) is $14.8 trillion for 2008.   See the web site the Financial Forecast  for details on the GDP forecast.   To put the financial bail out and massive spending being originated in Congress and the US Treasury in context, it is more that 50% of the total US gross domestic product.    The total US tax revenues (collected for 2006) totaled $2.5 trillion dollars, of which 44% ($1.3 trillion) was collected from individual’s income taxpayers.

            So the massive bailout of 2008, orchestrated by the Democrat controlled US Congress and an outgoing “lame duck” president will be paid for by the US taxpayer in form of higher taxes (as Barack Obama has promised), increased US debt and inflation from money being printed to cover deficit spending.  Whatever the method, the spending in the Washington DC is out of control.    And the incoming Democrat Congress and new Democrat President has said we’ll put a hold on reducing US Government debt and spending until the US economy is back on track.   Huh?   

            Once again the temptation for politicians at all levels, especially those in Washington DC, to spend Other Peoples Money is too easy and too great to resist.   It’s probably a good time to buy some gold, save some money and avoid more personal debt.    We could be in for some wild financial times, given the spending spree in Washington.

© 2008, Four Corners Media, Jasper Welch

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