Reporting from Washington — With its decision last week to pump an additional $1 trillion into the financial crisis, the government eliminated any doubt that the nation is on a wartime footing in the battle to shore up the economy. The strategy now -- and in the coming Obama administration -- is essentially the win-at-any-cost approach previously adopted only to wage a major war.
And that means no hesitation in pledging to spend previously almost unimaginable sums of money and running up federal budget deficits on a scale not seen since World War II.
Indeed, analysts warn that the nation's next financial crisis could come from the staggering cost of battling the current one.
Just last week, new initiatives added $600 billion to lower mortgage rates, $200 billion to stimulate consumer loans and nearly $300 billion to steady Citigroup, the banking conglomerate. That pushed the potential long-term cost of the government's varied economic rescue initiatives, including direct loans and loan guarantees, to an estimated total of $8.5 trillion -- half of the entire economic output of the U.S. this year.
Emphasis added by me.
Really, why should I comment further? It seems like breath wasted. Just today I read someone declare -- with a straight face! -- we're at the "bottom" of this mess and recovery is right around the corner.
More:
Analysts say the current flood of red ink calls into question Obama's ability to launch programs such as middle-class tax cuts and a healthcare overhaul. In 1993, a deficit only a third the size of next year's projected $1 trillion prompted President Clinton to abandoned his campaign pledges of tax cuts.
Once the financial crisis eases, higher interest rates and soaring inflation will be risks. If they materialize, they could dramatically increase the government's borrowing costs to meet its annual debt payments. For consumers, borrowing could become more expensive even as the price of everyday items rise, holding back economic growth.
"We could have a super sub-prime crisis associated with the meltdown of the federal government," warned David Walker, president of the Peter G. Peterson Foundation and former head of the Government Accountability Office.
Emphasis added by me.
In other words: USA-Zimbabwe.
More:
Washington could wind up spending substantially less than the sum of the commitments. Though the total estimated cost of the government's efforts adds up to $8.5 trillion, only about $3.2 trillion has been tapped, according to an analysis by Bloomberg.
And not all the money committed is direct spending. About $5.5 trillion in loan guarantees and other financial backing by the Federal Reserve is included in the total.
"The only way those commitments would become obligations would be if the economy completely collapsed, in which case it's a whole new ballgame anyway," said John Steele Gordon, a business and economic historian.
Emphasis added by me.
Except in a ballgame, people don't starve to death.
And, oh, that $8.5T? That's only us. I've yet to see someone add up what's been spent in Iceland, England, Scotland, Ireland, Italy, Germany, France, Spain, China, etc, etc.
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