Posted by
Tom L. on Thursday, December 18, 2008 9:20:04 AM
According to The Liberal New York Times (26 November 2008) the U.S. government’s financial assistance/economic stimulus/bailout was at least $7,800,000,000,000. Now that is $7.8 Trillion.
Several commentators have asked, “Where is all that money going to come from?” One even asked if the Federal Reserve was going to print it? Missing the point that the Federal Reserve does not print money, that is done by the Department of the Treasury’s Bureau of Engraving and Printing.
It is important to understand that the government is not spending all that money.
$3.1 trillion is being used by the government as an insurer for guarantees to investors and depositors (think FDIC). Now granted, in theory the $3.1 trillion is “at risk”, but it is very, very unlikely that it would be lost. In fact, much of the money is earning interest.
$3 trillion is available to the government to invest in commercial paper, banks, etc. Commercial paper is usually considered a safe investment and both the commercial paper and the capital investment in banks earns interest. Again, low risk with a potential for a return on the investment.
$1.78 trillion is for loans. These short term loans are backed by collateral. It is assumed most will be paid back. For those that are not paid back, the government can sell the collateral, but probably at a loss. The amount of the lost is unknown.
To paraphrase a quote attributed to Everett Dirksen: A trillion here, a trillion there, and pretty soon you're talking real money. But, it is important to remember that the U.S. government is not going out and buying flat panel televisions and trips to Cancun. In fact, so far it has only “spent” about $1.4 trillion.
So these may be uncharted economic waters, but the government is not actually spending that $7.8 trillion you may have heard about.