In recent issues of Bourbon & Bayonets I’ve discussed some of the costs of this bailout from an academic standpoint. I looked at how this bailout was the result of Keynesian economics whether that’s what it was called or not. A Keynesian run economy is one that may last for many decades before it finally tips.
The most blatant sign of a Keynesian based economy are the business cycles. That’s right; the business cycle is not a naturally occurring process. It is the direct result of liquidity expansions during economic downturns and liquidity contractions at economic peaks.
The excess liquidity results in a higher economic peak than the prior peak. As the old adage goes, the bigger they are the harder they fall. So not only does each peak that follows have a higher peak, but the troughs have lower troughs requiring more liquidity to turn the boat around, which then, in turn, results in a higher peak. It’s a merry-go-round that has started spinning to fast to get off, and it has a major snowball effect.
The thing is that this ride does eventually stop. A Keynesian ran economy is one that can only run on such policies for so long. When the ride stops, the carnival goers spew up vomit of monetary destruction and economic bile, but I’ve already discussed these things, even if it was in a less graphic manor.
How Many Zeroes Did You Say?
Most people have heard the economic theories, and whether you, dear reader, agree with me or some other pundit matters not. There is something that speaks louder than words: numbers. There have been some great sources recently putting out some shocking figures about the aggregate costs of this whole mess. Let’s check it out.
The $3.2 trillion spend thus far is a massive figure, but dwarfs the $8.5 trillion that is all but committed. Unfortunately, I don’t expect it to stop there. I would be fully shocked if we don’t see that $8.5 AT LEAST DOUBLE from here.
The problem is that nobody really understands the true size of these figures. It’s shocking how quickly America just accepted whatever –illion it was whether it started with a M, B, or T. I mean, what the hell... what’s $30 billion for Detroit when Citi just got $300 billion and the Fed has doled out some $2 trillion in other lending programs (I hope it’s not too difficult to portray sarcasm through writing).
A Cruel Slap of Reality
Well, James Bianco has done a wonderful job in taking us from “what’s another zero matter land” to “HOLY **** land.” Here are some of the largest government expenditures in the U.S.’ history and their inflation adjusted values. The inflation adjusted values are from government reported figures.
Marshall Plan: $12.7 billion; inflation adjusted $115.3 billion
Louisiana Purchase: $15 million; inflation adjusted $217 billion
Race to the Moon: $36.4 billion; inflation adjusted $237 billion
S&L Crisis: $153 billion; inflation adjusted $256 billion
Korean War: $54 billion; inflation adjusted $454 billion
The New Deal: $32 billion (est); inflation adjust $500 billion (est)
Invasion of Iraq: $551 billion; Inflation adjusted $597 billion
Vietnam War: $111 billion; inflation adjusted $698 billion
NASA: $416.7 billion; inflation adjusted $851.2 billion
Data from James Bianco
That gives us a grand total of $3.92 trillion. I wouldn’t blink because we are going to pass that number with the bailout costs before you know it. Bianco reports that the only event that can close to the costs of the bailout up to this point is World War II. WWII cost $288 billion. Adjusting the numbers for inflation and we’re looking at $3.6 trillion. Still, if you add the cost of WWII and the rest of the above mentioned fiscal expenditures and it falls short of the $8.5 trillion number stated by SFGate.
Dear reader, all said and done, the bailout of the U.S. financial system will have cost more than two times the list of the greatest expenditures in the history of our nation. What folks don’t realize is that WE WILL HAVE TO PAY FOR THIS. The costs will be years and possibly decades of economic stresses. Welcome to freaking Japan. Short government bonds anyone?
Nicholas Jones
Analyst, Oxbury Research
The most blatant sign of a Keynesian based economy are the business cycles. That’s right; the business cycle is not a naturally occurring process. It is the direct result of liquidity expansions during economic downturns and liquidity contractions at economic peaks.
The excess liquidity results in a higher economic peak than the prior peak. As the old adage goes, the bigger they are the harder they fall. So not only does each peak that follows have a higher peak, but the troughs have lower troughs requiring more liquidity to turn the boat around, which then, in turn, results in a higher peak. It’s a merry-go-round that has started spinning to fast to get off, and it has a major snowball effect.
The thing is that this ride does eventually stop. A Keynesian ran economy is one that can only run on such policies for so long. When the ride stops, the carnival goers spew up vomit of monetary destruction and economic bile, but I’ve already discussed these things, even if it was in a less graphic manor.
How Many Zeroes Did You Say?
Most people have heard the economic theories, and whether you, dear reader, agree with me or some other pundit matters not. There is something that speaks louder than words: numbers. There have been some great sources recently putting out some shocking figures about the aggregate costs of this whole mess. Let’s check it out.
The $3.2 trillion spend thus far is a massive figure, but dwarfs the $8.5 trillion that is all but committed. Unfortunately, I don’t expect it to stop there. I would be fully shocked if we don’t see that $8.5 AT LEAST DOUBLE from here.
The problem is that nobody really understands the true size of these figures. It’s shocking how quickly America just accepted whatever –illion it was whether it started with a M, B, or T. I mean, what the hell... what’s $30 billion for Detroit when Citi just got $300 billion and the Fed has doled out some $2 trillion in other lending programs (I hope it’s not too difficult to portray sarcasm through writing).
A Cruel Slap of Reality
Well, James Bianco has done a wonderful job in taking us from “what’s another zero matter land” to “HOLY **** land.” Here are some of the largest government expenditures in the U.S.’ history and their inflation adjusted values. The inflation adjusted values are from government reported figures.
Marshall Plan: $12.7 billion; inflation adjusted $115.3 billion
Louisiana Purchase: $15 million; inflation adjusted $217 billion
Race to the Moon: $36.4 billion; inflation adjusted $237 billion
S&L Crisis: $153 billion; inflation adjusted $256 billion
Korean War: $54 billion; inflation adjusted $454 billion
The New Deal: $32 billion (est); inflation adjust $500 billion (est)
Invasion of Iraq: $551 billion; Inflation adjusted $597 billion
Vietnam War: $111 billion; inflation adjusted $698 billion
NASA: $416.7 billion; inflation adjusted $851.2 billion
Data from James Bianco
That gives us a grand total of $3.92 trillion. I wouldn’t blink because we are going to pass that number with the bailout costs before you know it. Bianco reports that the only event that can close to the costs of the bailout up to this point is World War II. WWII cost $288 billion. Adjusting the numbers for inflation and we’re looking at $3.6 trillion. Still, if you add the cost of WWII and the rest of the above mentioned fiscal expenditures and it falls short of the $8.5 trillion number stated by SFGate.
Dear reader, all said and done, the bailout of the U.S. financial system will have cost more than two times the list of the greatest expenditures in the history of our nation. What folks don’t realize is that WE WILL HAVE TO PAY FOR THIS. The costs will be years and possibly decades of economic stresses. Welcome to freaking Japan. Short government bonds anyone?
Nicholas Jones
Analyst, Oxbury Research
