$3.9 Trillion Was a Drop in the Bucket

I remember when $3.9 trillion sounded like a lot of money.

Just weeks after that unfathomable figure dropped my jaw to the ground as I added up the total cost of the financial crisis, I regret to inform you that the sum has promptly doubled. That's right: While the nation was mired in contentious debate over a measly $25 billion bailout for the likes of General Motors (NYSE: GM  ) and Ford (NYSE: F  ) , my Foolish running tally grew by more than 188 times that amount!

Drawn from independent research and diverse published sources, the following table seeks to provide as precise an accounting of the crisis as the public record currently permits. By my calculations, the combined total of existing and announced outlays from the Federal Reserve and from U.S. government agencies that are directly attributable to the financial crisis has ballooned to more than $8 trillion.

Item

Issuer

Amount of Outlay

Commercial Paper Funding Facility

Federal Reserve

$1.8 trillion

Temporary Liquidity Guarantee Program

FDIC

$1.4 trillion

Term Auction Facility (TAF)

Federal Reserve

$900 billion

Fannie Mae (NYSE: FNM  ) , Freddie Mac (NYSE: FRE  ) , and Ginnie Mae

U.S. Treasury / Federal Reserve

$800 billion

Treasury Asset Relief Program (TARP)

U.S. Treasury

$700 billion

Total USD International Currency Swap Lines

Federal Reserve

$688 billion

Money Market Investor Funding Facility

Federal Reserve

$540 billion

Other Loans: Primary Dealer Credit, etc.

Federal Reserve

$288.7 billion

Citigroup (NYSE: C  ) Guarantee

U.S. Treasury / FDIC

$306 billion

Hope for Homeowners Act of 2008

U.S. Treasury

$304 billion

Term Securities Lending Facility (TSLF)

Federal Reserve

$225 billion

Term Asset-Backed Securities

Loan Facility (TALF)

U.S. Treasury

$200 billion

Economic Stimulus Act of 2008

U.S. Treasury

$168 billion

Paid to JPMorgan Chase (NYSE: JPM  )

to Settle Lehman Brothers Debt

Federal Reserve

$138 billion

AIG (NYSE: AIG  ) Bailout

Federal Reserve

$112.5 billion

Bear Stearns Brokered Sale

Federal Reserve

$26.9 billion

I'm afraid to look …

Total:

$8,597,100,000,000

* "Other loans" total from the Fed's statistical release as of Nov. 19, 2008, which includes discount window lending to banks and brokerages, and the Asset-Backed Commercial Paper Money Market Liquidity Facility.

Before we use some known quantities to place that sum in perspective, please note the following:

  • In some cases, relatively small portions of the pledged amounts have thus far turned into actual loans.
  • Virtually all of these outlays are considered temporary in nature, although in many cases we have no way of knowing just how temporary they will be.
  • Some of the amounts indicated above could grow larger still. The ultimate value of all U.S. dollar international currency swaps, for example, cannot be known precisely, since the Federal Reserve established some unlimited swap lines last month.

The ultimate numbers game
This enormous debt is no joke, but that doesn't mean we Fools can't have fun crunching the numbers down into bite-sized pieces. With the holidays approaching, consider that $8.6 trillion is enough to teach the world to sing in perfect harmony, buy the world a Coke, and still have more than enough left over to buy every single person in the world a 50-inch plasma TV.

For Fools wishing to know what they're on the hook for, the $28,119 share for every soul in the U.S. would keep all Americans super-sized with a McDonald's double cheeseburger every day for 77 years. Alternatively, the ghastly sum could have subsidized the winter heating expenses for all American households for 79 years at 2007 prices.

The Yucca Mountain of debt
At some point, we must concede that the scale of these outlays calls into question the collective ability of the borrowers to repay these loans. How long will it take for a struggling economy to repay $8.6 trillion? Clearly, we just don't know. We do know that both the Federal Reserve and the Treasury are amassing debt securities as collateral that no private entity will touch right now, and we know that the Fed is refusing to disclose related details despite a pending lawsuit from Bloomberg.

The continuing indications from Washington that dollars will be hurled at this crisis in any quantity deemed necessary raises legitimate concerns about the future purchasing power of the dollars in your wallet, your CD, Treasury bonds, or other dollar-denominated instruments. Occurring in a vacuum, a deleveraging event like this one would be decidedly deflationary. In the context of these outlays, however, I believe "stagflation" and "hyperinflation" will instead be among the words historians use to describe this period.

Thankfully, one need not convert out of the currency to find some protection from a falling dollar. The Motley Fool Global Gains newsletter team is constantly scouring the globe to identify terrific investment opportunities for Fools who wish to diversify out of the domestic markets, and they're ready to share their findings with you.

Further Foolishness:

Representing a basket of commodity-related picks, Christopher's CAPS score has plummeted from the top 1 percentile to the complete opposite end of the spectrum since the spectacular summer sell-off in commodities. He thinks his pain could be your gain, and he invites you to explore his picks, create your own CAPS profile, and see how your picks compare to the 120,000-member CAPS community.

Fool contributor Christopher Barker thinks his great-grandchildren may still be paying this debt. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. JPMorgan Chase is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (71)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 27, 2008, at 2:57 AM, DemonDoug wrote:

    Chris, what about the PDCF (Primary Dealer's Credit Facility)?

  • Report this Comment On November 28, 2008, at 7:48 AM, XMFSinchiruna wrote:

    Hi DemonDoug,

    The PDCF is included within the "Other Loans" item above.

  • Report this Comment On November 28, 2008, at 11:35 PM, mike89044 wrote:

    Don't you think it's a little irresponsible to say that the cost is 8.5T when you and I don't have a clue what the ultimate cost might be. Many of these numbers thrown around are guarantees and indicate what might happen if the investment is totally worthless. I don't think any of these investments are totally worthless. The government can hold them indefinitely. Furthermore many of these investments are preferred stock purchases where the government will be receiving interest. If every single bank they have backed goes out of business, you might be right. Otherwise it is quite possible that the government actually makes money. You obviously have some understanding of what is going on, unlike many other pundits. I think it is bad to spread fear and negativity when the outcome is not even close to a determination.

  • Report this Comment On November 29, 2008, at 9:52 AM, javnnf wrote:

    I agree with mike89044.

    This article is looking at the worst case scenario.

  • Report this Comment On December 01, 2008, at 11:15 AM, XMFSinchiruna wrote:

    Thanks for your comments!

    mike89044, I appreciate your point of view, and assure you that my purpose in keeping people informed of the total scale of outlays is something I consider of crucial importance to those wishing to understand what is being done to their nation's currency, and by no means to I seek to spread fear nor negativity.

    Keep in mind that the vast majority of this debt is not being accrued by the government itself, but onto the balance sheet of a private banking consortium operating under the quasi-governmental structure of the Federal Reserve system. It may sound like splitting hairs, but I think it's a significant hair under the circumstances.

    Second, if these parties were to hold the debt indefinitely, then the potential impacts upon the currency are effectively equivalent to the impact of complete losses. The amount of time that these sums of money spend in existence is the paramount factor for their monetary impact, in my opinion.

    Third, the ratio of preferred stock purchases to lines of credit within the entire range of interventions outlined in the table above is extremely small. The fact that the Fed refuses to disclose details of the collateral being accepted for these loans suggests some seriously distressed collateral has already come aboard.

    You are correct to point out that the ultimate cost can not be known at this time. It could end up anywhere from far less than the $8.6 trillion figure to a great deal more before all is said and done, and only time will tell. In presenting these tally's however, I believe I provide an important gauge for readers to determine how much of our currency is being placed upon the gaming table. The degree of risk involved I leave up to each individual Fool to decide for themselves.

    Personally, it is the height of understatement for me to say that I view it as highly unlikely that the government or the Fed will turn a profit from all of this.

    javnnf,

    I think a worst case scenario would be if the $8.6 trillion figure were to increase again by a similar margin before my next tally.

    Thanks again for your comments, and please know these are just one man's opinion.

  • Report this Comment On December 01, 2008, at 5:06 PM, bweeks3 wrote:

    I agree the analysis of the "potential" is most worthy. While the end tally will surely deviate substantially from the $8.6, the size of the bet is what is staggering. The unwillingness to show what's behind the curtain is concerning as well.

    Same subject - different line: Why is there not more serious concern over inflation/hyperinflation? A current snapshot shows an existing $9+ trillion debt, (growing at roughly $2 more per year) jjust to meet current spending obligations, plus the new administrations' commitment to extraordinary expansion of social programs and infrastructure capital investment. We can't possibly "grow" out of that level of debt ?? so the only solution is to print money. How can that not be inflationary - seriously so - hyperinflationary? I don't get it. Please explain - if there is one.

  • Report this Comment On December 01, 2008, at 5:26 PM, XMFSinchiruna wrote:

    bweeks,

    While I personally reside in the hyperinflation camp, there are solid arguments presented by both sides of the inflation / deflation debate. I recommend a dive into the CAPS blogs, where you can search for content by keywords, to find some of the excellent debate that has already taken place on the topic. :) As one who sees inflation looming, I would not wish to be the one to summarize the position of the alternate viewpoint.

  • Report this Comment On December 03, 2008, at 5:31 PM, bweeks3 wrote:

    Sinchiruna

    CAPS blogs?

    Sorry for the ignorance.

  • Report this Comment On December 03, 2008, at 10:24 PM, XMFSinchiruna wrote:

    Not at all... come on in ... you're most welcome!

    http://caps.fool.com/Blogs/index.aspx?source=ifltnvsnv000000...

    Here's my CAPS blog:

    http://caps.fool.com/Blogs/ViewBlog.aspx?t=01006124249416869...

    If you're not yet a CAPS member, you may sign up for free right here:

    http://caps.fool.com?source=icaedilnk9950002

    Come to my blog and let me know once you're signed up, and I'll be more than happy to show you around. It's a terrific sight and a great community of investors.

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