Musings on Trillions

Just what is a trillion? It's a million million. That's 10¹² or 1,000,000,000,000.

fr0m Trillion-Dollar Spree is Road to Ruin, Not Rally
by Kevin Hassett

The Congressional Budget Office last week forecasted that the 2009 federal budget deficit will be about $1.2 trillion, roughly triple what it was in 2008... If the stimulus bill passes, the deficit next year will be $1.7 trillion...

The whole world’s military spending in 2006 totaled a little less than $1.2 trillion. So next year’s U.S. deficit could cover that and still have $500 billion left over for building bridges...

When President George W. Bush was first elected, total federal government spending was about $1.7 trillion. In other words, the difference between federal outlays and federal revenue this year will be bigger than the entire government was as recently as 2000.

In last Sunday's Washington Post, Greg Ip gives a few more startling figures:

At the end of the last fiscal year, in September, the total public debt held by the American people (excluding debt issued to the Social Security Trust Fund or held by the Federal Reserve) stood at $5.8 trillion, or 41 percent of gross domestic product -- about what the debt-to-GDP ratio has averaged since 1956. But the Congressional Budget Office projects deficits of $1.9 trillion over the next two years. Add almost $800 billion of stimulus spending, and U.S. debt soars to 60 percent of GDP by 2010 -- the highest level since the early 1950s, when the nation was working off its World War II and Korean War debts.

The other major cause for concern is that the federal government has taken on massive "contingent liabilities" -- loans and guarantees that don't become actual costs until the borrower defaults and the federal guarantee has to be honored...Bianco Research, a Chicago financial research firm, puts the total of such contingent liabilities (as of Dec. 29) at more than $8 trillion.

According to Howie Rich 2008:Year of the Bailout, on GetLiberty.org 01/08/2009, the government may have committed itself to $10 trillion thus far :

And while there is some confusion as to the current price tag of this growing “Bailout Mania,” we know that over the past sixteen weeks the U.S. government has poured nearly $10 trillion dollars into “correcting” the market.

You heard that right - $10 trillion dollars.

What about the $2 trillion in FDIC assurances, $1.75 trillion in Federal Reserve commercial paper purchases, $900 billion in term auction facility lending, $600 billion to insure money market funds, $600 billion to cover Fannie and Freddie’s worthless mortgage-backed securities, $550 billion for discount Federal Reserve loans, $500 billion to insure FDIC deposits, $300 billion for FHA mortgage relief, $250 billion for Citigroup debt, $225 billion for securities loan facility lending, $200 billion for Fannie and Freddie’s debt, $112 billion for A.I.G., and on down the line.

Add all those numbers up and you’re dealing with more than twice the inflation-adjusted cost of rebuilding post-World War II Germany, the Louisiana Purchase, NASA’s entire budget (since its inception), the S&L bailouts, Roosevelt’s New Deal, the Korean War, the Vietnam War, the Gulf War, and the Iraq War – combined...

With only a fraction of the total bailout tab on the books, our national debt has already soared to more than $10.7 trillion dollars.

That’s an astounding 72.5 percent of our gross domestic product (GDP).

Eight years ago, the debt was $5.6 trillion, or 58 percent of our GDP.

Just where is all of this money coming from?

One explanation can be found on Smart Money: Fed's Balance Sheet is Ballooning Fast. Luskin correctly compares all this money creation to counterfeiting, but then he backs off and says it's needed to stave off deflation. Oh well, I still like his graph.

Another (better) explanation of what the Fed and Treasury have been up to these past few months is provided by Axel Merk in "Monetizing the Debt." He explains it better than I ever could so if you are interested, you will just have to read it for yourself. Anyone else come across a good explanation?

Update 1-23-09 An excellent set of posts on this topic can be found at The Rational Capitalist. He refers to a couple of posts at Econbrowser (and an update here) which go into the details of just how the Fed and the Treasury are attempting to create money now while delaying the inevitable inflation.

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