$8.6 Trillion Was a Drop in the Bucket

Like the quicksand victim who claws and squirms to climb out, the collective response to this ongoing financial crisis has left the United States mired ever-deeper in a pit of debt with no branches in sight.

While we await details on the next phase of bailout measures, the undeniable deterioration of the global financial system makes it clear that more interventions will be required if we are to retain this strategy of spending our way out of the quicksand.

Given the enormity of these measures, Fools may be right to question whether any amount of money will prove sufficient to slay this depressionary beast. To help assess these important questions, I continue to keep a running tally of the interventions. On the heels of Obama's $787 billion stimulus plan, even the incredible $8.6 trillion figure reported last November is now history.

Drawn from independent research and diverse published sources, the following table provides as precise an accounting of the crisis as the public record presently permits. By my calculations, the combined total of existing and announced potential outlays from the Federal Reserve and from U.S. government agencies that are directly attributable to the financial crisis has climbed to more than $10 trillion!

Item

Issuer

Amount of Outlay

Commercial Paper Funding Facility

Federal Reserve

$1,800 billion

Temporary Liquidity Guarantee Program

FDIC

$1,400 billion

Term Asset-Backed Securities

Loan Facility (TALF)

Federal Reserve

$1,000 billion

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

Obama Stimulus Plan

U.S. Treasury

$787 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

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

Economic Stimulus Act of 2008

U.S. Treasury

$168 billion

Other loans: Primary Dealer Credit, etc.*

Federal Reserve

$142.9 billion

Paid to JPMorgan Chase (NYSE: JPM  )

to settle Lehman debt

Federal Reserve

$138 billion

Bank of America (NYSE: BAC  ) Guarantee

U.S. Treasury / FDIC

$118 billion

AIG (NYSE: AIG  ) Bailout

Federal Reserve

$112.5 billion

Bear Stearns brokered sale

Federal Reserve

$25.9 billion

I'm afraid to look …

Total:

$10,155,300,000,000

* "Other loans" total from the Fed's statistical release as of February 11, 2009, which includes discount window lending to banks and brokerages, and the Asset-Backed Commercial Paper Money Market Liquidity Facility.

To be clear, this is not a tally of monies already committed, which remains a much smaller sum. Nonetheless, I consider this tally of pending and potential outlays very informative in quantifying the scale of the government's total response. If, as we're often told, we are facing essentially a crisis of confidence, is it not noteworthy that more than $10 trillion in potential responses and a zero-bound interest rate have failed to restore that confidence?

Also, many are quick to suggest that major portions of these outlays are essentially investments that will be recuperated or will even turn a profit once the markets return to normal. Again, as the sum grows ever-larger, such best-case scenarios could become the exception rather than the rule.

For Fools wishing to know what they're on the hook for, $10.16 trillion amounts to $33,261 a share for every soul in the United States. In terms our fast-food nation can visualize, that's a McDonald's (NYSE: MCD  ) cheeseburger for every American every day for over 90 years.

The Yucca Mountain of debt
At some point, we must concede that the scale of these outlays calls into question the collective ability of borrowers to repay these loans. We have no way of knowing what portions of these outlays will be recovered … nor when. 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 still refusing to disclose related details despite a 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 will instead be among the words used by historians to describe this period.

Thankfully, one need not convert out of the currency to find some protection from a structurally compromised U.S. dollar. The Motley Fool Global Gains newsletter team is constantly scouring the globe to identify terrific investment opportunities for Fools who wish to diversify outside of the domestic markets, and they're ready to share their findings with you. A 30-day trial is free.

Further Foolishness:

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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 newsletters today, free for 30 days. The Motley Fool's disclosure policy has a squeaky-clean balance sheet.


Read/Post Comments (20) | Recommend This Article (64)

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 February 19, 2009, at 10:47 AM, Dadw5boys wrote:

    The British are finally setting up a credit default swap clearing house, July finish date proposed for all existing credit swaps.

  • Report this Comment On February 19, 2009, at 11:51 AM, FinancialFellow wrote:

    It's hard not to look at this and think about how much trouble we're in. 10 trillion dollars.... Really? If that is a drop in the bucket I'm afraid to know what the final tally will be. If there was any question about if before there no longer is: The American Empire is in decline.

    The need to create cheap money has also driven down interest rates. The best online savings rates are looking rather paltry: http://financialfellow.com/2009/02/19/online-savings-account...

  • Report this Comment On February 19, 2009, at 12:38 PM, JHalen wrote:

    That's $33,000 for every man, woman and child in the U.S.

    Admittedly only a portion has been committed, but think about the stimulus it would create were it going directly to the people!

  • Report this Comment On February 19, 2009, at 12:42 PM, djemonk wrote:

    How much of this is actually being spent and how much is just being allocated in case its needed? It looks like some of the larger price-tag items are not actually being spent unless it comes to financial disaster. The rest seem to be loans, which one would hope would be paid back

    This article is indicative of the paralytic fear that seems to divorce thinking from reality. I'd almost be willing to bet an ounce of gold that there's a goldbug lurking behind this one.

  • Report this Comment On February 19, 2009, at 12:50 PM, TMFHousel wrote:

    I think an even more shocking number -- and one that largely counteracts the current proposed outlays -- is that 40% of all global wealth (roughly $30 trillion) has been destroyed in the past 18 months.

  • Report this Comment On February 19, 2009, at 12:58 PM, laurentiu1975 wrote:

    It's an verry interesting study .... and in the same time SCAREFULLY !

  • Report this Comment On February 19, 2009, at 1:32 PM, XMFSinchiruna wrote:
  • Report this Comment On February 19, 2009, at 1:49 PM, TMFHousel wrote:

    That is a pretty awesome video, Chris.

  • Report this Comment On February 19, 2009, at 1:57 PM, dickonwalker wrote:

    A couple of points to digest:

    The US dollar is owned by a private cartel (the so called 'Fed')

    We are already wholly indentured to this cartel, by way of US government interest payment commitments on nealy every single dollar which is in 'circulation'

    The Fed prints money, and through majority owned subsidiary banks invests it in derivatives of it's choice thus further leveraging the money previously created out of 'thin air'

    The bailout money is being used to prevent the collapse of the 'market' (primarily these days composed of derivatives as opposed to trading in any real or tangible goods or services

    The obligations which are being serviced by the bailout money are the same ones which created the chaos in the first place - the unsupportable derivative trades (unsupportable because to prevent the collapse of these trades requires an exponential growth in money supply - clearly a mathematical impossibility)

    So, don't be surprised by just yet another chapter in the resultant collapse of the mother of all Ponzi schemes - the privitisation of national currencies

    To summarise, the baliout is yet another link in the chain of the complete and total theft of the US and world economy being perpetrated by the international banking cartel. Hard to believe, which is one reason why it is able to carry on unabated, along with the truism that money corrupts and the fact that the fed has all the money in the world to corrupt with....

    These facts can be relatively easily checked, please begin with the highly informative book 'Web of Deceit' for a finance lesson 101

    On a lighter note, the collapse of the world economy may yet be soon enough to save the collapse of the worlds eco system :-)

  • Report this Comment On February 19, 2009, at 7:07 PM, PressClub wrote:

    $10,155,300,000,000? Big number.

    Which 2 Words Could Kill global economics and the rocket scientists who got us all here? Write Off.

    Never fear, we are still well armed enough and perhaps just crazy enough to actually try it (so watch out for that big push to take your arms away. After all, those nasty things make it so much more dicey getting you all loaded on that rail car destined for the plant designed to eliminate *your* "carbon footprint").

    If it is true that the worth of all US land is around $7,000,000,000,000, we can't even secure this much debt with the entire country, even at 105% LTV.

    All the dark humor aside, is there any chance of a "do over" on, say, the last 30 years or so?

  • Report this Comment On February 19, 2009, at 7:28 PM, MittyMo wrote:

    Under the Rule of 72, you divide 72 by the prevailing interest rate in order to determine the number of years required to double the size of our indebtedness. If we return to the interest rate levels present in the Carter years, our debt would double in 4 years.

  • Report this Comment On February 19, 2009, at 7:41 PM, JavaChipFool wrote:

    Why look behind the curtain?

    I for one don't understand how CDS's are allowed.Or, if allowed, the terms need to be changed such that there needs to be more assets in reserve to cover a triggering of the "credit insurance policy"aka CDS. Similar to a traditional life insurance policy.

    How did this crapola get out there without being regulated? Its like letting everyone go to Vegas, but even worse! You get to take out insurance policies that everyone will win!

    It is crazy! Can we stop this!

    Meanwhile, every article ends with "Never fear, our #%&*&*%# Fool newsletter/service will give you market beating returns in this/any/future/past/crazy environment"

  • Report this Comment On February 19, 2009, at 7:56 PM, MittyMo wrote:

    Under the Rule of 72, you divide 72 by the prevailing interest rate in order to determine the number of years required to double the size of your indebtedness, assuming no payments. If we return to the interest rate levels of the Carter years, we would have to pay out $1.8 trillion in interest each year (assuming no new borrowings) just to stay even.

  • Report this Comment On February 20, 2009, at 1:37 AM, southard wrote:

    Great article. Finally something really done well. I think its obvious that either we suffer a depression while Americans pay down their debts or inflate our debts at the cost of debasing our beloved dollar. My bet is on inflation. It can't be sustainable for our economy to compete while workers from other countries make goods for much much lower pay. The gap between our wages and other countries must shrink in order to revive our economy. It also worth noting that much this wage gap has been supported by the fact that as more dollars are printed they are more easily absorbed into the world economy than other currencies because OIL is traded in dollars. If the major oil players ever start substituting other currencies for the dollar the changes to our standards of living could be seismic in scale.

  • Report this Comment On February 20, 2009, at 1:44 AM, saunafool wrote:

    I guess Alan Greenspan was wrong about his whole bubble philosophy--that it's easier to clean up the mess after the bubble pops than to prevent the formation.

    Sure, Americans would not have enjoyed much of the prosperity of the past decade, but since it was all funded with credit, the prosperity wasn't real.

    Oh well, don't get scared, just pick up a shovel and get to work with the clean up.

  • Report this Comment On February 20, 2009, at 2:36 AM, swgwang wrote:

    I think I'm going to barf.....the blood will flow eventually..........

  • Report this Comment On February 20, 2009, at 9:58 AM, lturk wrote:

    The first part of the article was superb: that last paragraph with the shameless plug for ANOTHER NEWSLETTER was laughable.

    You seriously think the rest of the world is in better shape than the U.S.??? If they have debt backed by U.S. dollars, their debt skyrockets overnight if the price of dollars goes up.

    There is a serious confidence crisis thanks to the fools in DC, it's time to grab the pitchforks and storm the castle.

    http://market-ticker.org/archives/813-Examples-Confidence-De...

  • Report this Comment On February 20, 2009, at 10:08 AM, XMFSinchiruna wrote:

    Iturk,

    I'm glad you enjoyed the article. I stand behind the last paragraph completely, and believe that opportunities for equity growth in places like China will be substantial as China's monster stimulus package really gains steam.

  • Report this Comment On February 20, 2009, at 1:14 PM, Coffeeman866 wrote:

    Even just the TARP + Obama Stimulus package pieces total $1.5 Trillion, or $5K for each person. Taking that up to over $10T is just incredibly scary.

    More quick math: $33K/person = over $130K for a (typical) family of 4.

    Since that is well above the annual median household income for the country, what percentage of our annual income will be used to pay for this going forward? What bottom line % of our taxes will be needed to service the debt, much less pay down the principle?

    My mind is blown right now...

  • Report this Comment On February 20, 2009, at 1:35 PM, XMFSinchiruna wrote:

    "My mind is blown right now..."

    Yours and everyone else's, dear Fool.

    After Rick Santelli's famous rant yesterday, though, one can begin to sense a sea-change of understanding and therefore of frustration among the general public about the whole mess. Santelli's rant is linked in a comment above, and is worth checking if you haven't seen it yet.

    I think the level of frustration he communicated struck a chord with millions who had not yet voiced their concerns... as he said, a silent majority.

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