But almost forgotten in the headlong rush to devise measures to create jobs and save the financial system is the total cost of the government’s commitment to solving the economic crisis.

Bloomberg News reported yesterday (Monday) that the tally of U.S. government spending could reach as much as $9.7 trillion – enough to pay off more than 90% of the nation’s home mortgages.

Already, the U.S. Federal Reserve, Treasury Department and Federal Deposit Insurance Corp. (FDIC) have lent or spent almost $3 trillion over the past two years and pledged another $5.7 trillion if needed. That adds up to almost two-thirds of the value of the entire gross domestic product (GDP) for the U.S. economy last year.

As astonishing as the number itself is a continuing lack of transparency in how and to whom the funds are being distributed.

“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Sen. Byron Dorgan, D-N.D., said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”

Notably, only the stimulus package currently on the table – along with the $700 billion Troubled Asset Relief Program (TARP) and last year’s $168 billion tax rebate – have actually been voted on by lawmakers.  An additional $8 trillion is in the form of government lending programs and guarantees.

In fact, Bloomberg filed a federal Freedom of Information Act (FOIA) lawsuit against the Federal Reserve Bank Nov. 7 seeking to force disclosure of borrower banks and their collateral. Arguments in the suit may be heard as soon as this month.

Meanwhile, the spending goes on. 

The Senate is to vote this week on a stimulus package totaling at least $780 billion that President Obama says is needed to avert a deeper recession.  If it passes the Senate, it would have to be reconciled with an $819 billion plan the House approved last month.

Treasury Secretary Geithner delayed announcing his new plan for addressing the banking crisis, details of which were reported yesterday in Money Morning.  The tab for that bailout is widely expected to total near $1 trillion. 

But questions remain as to what effects the stimulus package and bank bailout will actually have on the economy, both near and long term.
The nonpartisan Congressional Budget Office reported last week that the measure is likely to create between 1.3 million and 3.9 million jobs by the end of 2010, lowering a projected unemployment rate of 8.7% by as much as 2.1 percentage points.

But the CBO also warned the long-term effect of that much government spending over the next decade could “crowd out” private investment, lowering long-term economic growth forecasts by 0.1% to 0.3% by 2019.

And simple mathematics calls into question assertions that another bailout will rescue banks teetering on the edge of insolvency.

Bank losses from the write-offs of bad loans and faulty derivatives add up to $1.5 trillion so far. Additionally, regulators are forcing banks to account for $5 trillion to $10 trillion worth of off-balance-sheet structured investment vehicles.

Given that banking rules require banks to keep assets on hand equal to 10% of those funds, banks will need as much as $1 trillion in the next year. Adding $1.5 trillion in losses means banks will need as much as $2.5 trillion in new capital to remain solvent under current rules.

“The banking system simply has no capital. All the money that’s been allocated so far has been like pouring water into a bucket with a hole in the bottom.” Satyajit Das, a credit expert from Johannesburg, South Africa, told MSNBC.

So is the $9.7 trillion pledged by the government going to be enough to pull the U.S. economy out of the fire? Who knows?

But here are a few facts:

• $9.7 trillion would be enough to send a $1,430 check to every man, woman and child alive in the world, Bloomberg reported.
• It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan.
• And it’s almost enough to pay off every home mortgage loan in the United States, calculated at $10.5 trillion by the Federal Reserve.

Although economists have been throwing around words like “trillion” like it’s nothing, $9.7 trillion is still is a lot of money.

Source: The $9.7 Trillion Pledged to Fix the Financial Mess Could Have Paid off 90% of America’s Mortgages, Report Says

I did my best to explain American mercantilism in the April 26 issue of “Gary North’s Reality Check.” There, I explained modern Keynesian economics as the American version of mercantilism.

My article, “Climbing of China’s Paper Money Tiger,” warned that the United States has adopted the Keynesian version of mercantilism: national consumption without production. It is a perfect match for China’s more traditional mercantilism, national production without consumption.

You can read my analysis here: http://www.garynorth.com/members/3433.cfm

While I do my best to make economics clear, I am no match for America’s most beloved retired humorist, Dave Barry. Breaking his book royalty-based silence, he has offered a stunningly brilliant insight into the likely economic effects of the 2008 tax rebate, which is called an Economic Stimulus Payment. I can do no better than to quote him verbatim.

Q. What is an Economic Stimulus Payment?

A. It is money that the federal government will
send to taxpayers.

Q. Where will the government get this money?

A. From taxpayers.

Q. So the government is giving me back my own
money?

A. Only a smidgen.

Q. What is the purpose of this payment?

A. The plan is that you will use the money to
purchase a high-definition TV set, thus
stimulating the economy.

Q. But isn’t that stimulating the economy of
China?

A. Shut up.

http://www.garynorth.com/snip/547.htm

In presenting this analysis, he offered neither a graph nor an equation. He will therefore not receive the 2009 Nobel Prize in Economic Science and the $1.6 million economic stimulus payment it brings. But his analysis, I predict, will turn out to be far more relevant and unquestionably more coherent than any analysis ever offered by next year’s prize winner.

GOOD NEWS AND BAD NEWS

The good news is that the Federal government is sending a little tax-free money back to us. Never look a gift horse in the mouth, especially when it’s coming from the horse thief who stole it from you.

The bad news is that this money will be borrowed. Every penny will be added to the on-budget debt of the United States government.

What is the estimated deficit today for fiscal 2008? This figure is buried in the recently released report, “The Cyclically Adjusted and Standardized Budget Estimates” (April 2008). The figure is $361 billion. A year ago, it was $162 billion (Table 1, p. 3). http://www.garynorth.com/snip/548.htm

Next year, the CBO estimates, the deficit will be a mere $133 billion. Write that figure down in your diary of accounting illusions. (The phrase “Arthur Andersen” comes to mind.)

On March 12, the Treasury made its estimate: $410 billion. This was the same as in February. http://www.garynorth.com/snip/549.htm

These are large figures. We are only in the early stage of a recession. It has barely begun to raise the unemployment rate. Yet consumer confidence is at the lowest level since the recession of 1982 (Reuters/University of Michigan Surveys of Consumers). Recall that 1982 was the year of the low point of the Dow: 777 (August).

Today’s loss of confidence has not yet affected the stock market significantly. Optimism still reigns among most stock market investors.

As the deficit soars, which it will, the government will absorb more resources that would have gone into the private sector. This is denied by Keynesians and some monetarists, but this process is obvious. In a recession, investors seek safety. They want to protect themselves against falling stocks and bankrupt corporations. They buy Federal government-issued debt on the assumption that the Federal government will not default in a recession. This money does not go to fund private capital.

This is bad for the economy but good — in the short run — for investors. Because the government is involved, we get the reverse of Bernard Mandeville’s path breaking book and poem, “Fable of the Bees: Private Vices, Public Benefits” (1714). We get private benefits and public vices.

PRIVATE SPENDING

I am in favor of tax-free rebates from the Federal government — any time, any place, any amount. Just send out the checks. The taxpayers can do better things with their money than the Federal government can.

So, I am in favor of Federal deficits, if the alternative is higher taxes. I am in favor of lower taxes, even if these lead to higher deficits. I think the Federal government will not cut spending for any reason but one: bankruptcy. So, as long as the beast is going to spend money, it might as well raise it by borrowing. Let the people who trust the government wind up as creditors to the government.