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Your Liability for the Bailout: $2,000 – Your Debt: $37,000

[Update: New bailout text is here. Spending under the new language is likely to be roughly the same. See discussion here.]

The text of bailout legislation that might pass through Congress this coming week is circulating on the blogs (and reliable sources too . . .). I’ve taken it and done a little analysis, based on a few assumptions that I will discuss below.

But here’s the punch line: The bailout will cost about $6,500 per U.S. family, a little over $2,000 per person.

The draft legislation would raise the public debt limit to $11.3 trillion dollars. That’s $116,000 per family, or $37,000 per person, in total governmental debt, which is really your debt.

Because this is draft legislation, and my own estimate rather than an official prediction, I will discuss those assumptions a little bit:

The bill would authorize the Secretary of the Treasury to purchase mortgage-related assets, and it would give him $700 billion dollars to work with. It is possible that the federal government will not expend all of those $700 billion, or even make some money back later on the assets it buys in the near term, but I agree with the blogger who called that laughable.

The Resolution Trust Corporation, which was created to clean up the S&L mess, had an estimated cost of about $50 billion in the early years, but wound up costing about $124 billion. So I assume that the $700 billion made available to the Treasury Secretary will be gone.

These are net present value calculations, made using current interest rates and population figures. I’ve treated the spending as occurring over three years, though most authorities in the draft legislation expire in two. It takes time to ramp up and wind down an operation like this, and it’s very hard to estimate when the spending will happen. This matters because future spending is cheaper than current spending. It’s very difficult to estimate costs when the situation is so fluid, but I think these are fair-to-conservative assumptions.

As I said before, there is almost no way that the government can tax this much money out of us directly. The U.S. government’s credit is obviously weakening, making borrowing more difficult. What will probably happen is that the government will inflate the currency by just printing more dollars. This taxes us a different way by making the cash we have worth less. This also imperils the viability of the dollar as a currency. Loss of confidence in the dollar would make this crisis look like a walk in the park.

The bailout is plainly a sop to the financial services companies whose profits were privatized and whose losses will now be socialized. That’s wrong. The proponents of the bailout, which appear to include most of our political leaders, say that it’s needed to prevent further financial catastrophe. Treasury Secretary Henry Paulson says that reforms will follow.

It’s up to you whom you agree with and whom you believe.

Visitor Comments for Your Liability for the Bailout: $2,000 – Your Debt: $37,000 RSS 2.0

Mark

I don’t understand why so many people use Total Public Debt Outstanding when talking about the Federal debt. It is the Debt Held by the Public that is the relevant debt, because it doesn’t include the debt that the government owes to itself:

http://www.treasurydirect.gov/NP/BPDLogin?application=np

Jim Harper

Probably because people recognize that debt the government ‘owes itself’ is also a liability that ultimately has to be paid.

Sam

Does government take more tax’s from these financial when they make multi Billion Dollars of profit then why should government take there problem.I still don’t understand how will be distress home owners get benifit out of it.It

Mary

So, if I may ask, is there a way we can individually help deter the passing of this? I’m not questioning your findings by asking, but what are the alternatives to this? Do you have any views on alternatives to the situation? Thank you

Jim Harper

You can deter the passage of it by contacting your representatives and asking them to oppose the bailout. (Remember to follow the issue and hold them to account on election day if they don’t do your bidding.)

Here’s a Web site I came across called StopTheHousingBailout.com – I have no knowledge of its merits or who runs it. It has information and sample communications to Congress.

Mind you, there is a good argument that there will be very difficult financial times ahead without this bailout, though I don’t know the mechanics of how those economic problems would manifest themselves. Be aware of that risk if you choose to oppose it.

But if a bailout is turned back, that will teach a good lesson to businesses of all kinds – that the U.S. government will not prevent them from tumbling into the canyon if they drive themselves off the cliff.

Louis Smith

This seems to me like a classic sellout. It will cost this nation dearly, far above the price tag they’re quoting. They (We?) just spent $100 Billion on AIG, now another $700? And the cost of servicing Fannie Mae and Freddy Mac?

I can’t help but think this is W’s “money-on-the-back-end” part of the deal. The debt will be financed heavily from foreign oil and energy money, two pots the Bush family has their hands firmly entreched in. They will in turn, as they have for decades, profit from the money loaned to our nation so Americans can afford to pay for inflated fuel prices, while the same holdings rake in earth-shattering oil industry profits. Sweet.

Is our national heritage at stake here? This sea change of debt is a great threat to our future, and perhaps our sovereignty. We can buck up and take the coming blow without having to allow this bill to pass. This is a defining moment.

Brian J. O'Malley

Nothing underscores the importance of the November election more than this fleecing of average Americans.

The leaders of these corporations were paid millions for their “talent,” and they then proceeded to ruin their companies and the economy simultaneously. Then they get paid millions more in severance packages while we pay for the consequences of their ineptitude and corruption.

I support the bailout, but there has to be a Congressional investigation into this matter. There is likely to be criminal negligence at the very least involved, and the individuals have to be held accountable or it will happen again. No question about it.

The Absurd Report » Financial Crisis: What Really Happened

[...] According to Cato’s Jim Harper, the $700 billion bailout will cost you $2000, or $6500 per household. [...]

Marc

What’s the bill number?

Jim Harper

As yet (Sept. 27), a bill hasn’t been introduced. I’ll be writing about it here when it is.

ford prime

figuring bureucrats can’t run anything for less than 35% to 40% admin costs, where is the 250 billion that would run in these estimates?

The Real Cost Of Social Engineering | American Sentinel

[...] to pony up to finance the bailout?  About $6,500.00 for the typical American family, according to Washingtonwatch.org.  Other estimates double or triple that figure.  Median houshold income in the United States is [...]

Patty

A few words from a couple good men……

“If the American people ever allow private banks to control the issue of
their currency, first by inflation, then by deflation, the banks and the
corporations which grow up around them will deprive the people of all
property until their children wake up homeless on the continent their
fathers conquered.”

- Thomas Jefferson

“Gentlemen, I have had men watching you for a long time, and I am
convinced that you have used the funds of the bank to speculate in the
breadstuffs of the country. When you won, you divided the profits
amongst you, and when you lost, you charged it to the bank.

“You tell me that if I take the deposits from the bank and annul its
charter, I shall ruin ten thousand families. That may be true,
gentlemen, but that is your sin! Should I let you go on, you will ruin
fifty thousand families, and that would be my sin! You are a den of
vipers and thieves. I intend to rout you out, and by the eternal God, I
will rout you out.”

- Andrew Jackson, the seventh president of the United States, to a
delegation of bankers in 1832

Worldview - Blog Archive » We’ve heard this one before

[...] the mean time, if you think incurring an additional average debt of $2000 per American is even worse for the economy than the current crisis, consider emailing your representative before [...]

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[...] public debt ceiling to $11.3 trillion or $37,000 per person in total governmental debt (h/t goes to The Washington Watch [...]

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[...] since we’ve had huge spending bills in Congress the last few weeks, this is no time for debt clocks to go out of whack. [...]

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[...] the drama of the election and the recent huge bailout and spending bills flying through Congress, it’s easy to forget the kajillions of little [...]

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[...] But I’m a fan of irony, and an opponent of hypocrisy, which we seem to be seeing here. The $700 billion of our money that Congress committed to this bailout is little more than a slush [...]

Ritu Raj

It can be financial analysis that “$37,000 per person, in total governmental debt” but I ask the people who live without $ in their country then what is this financial analysis? I have heard it many times and here with the same analysis. However the post has importance from capitalist point of view.

Thanks
http://mortgageprocess.wordpress.com/

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[...] indications are that it is going to go a lot higher. (NOTE: The US debt clock does not include the additional liabilities from the Bailouts nor the nationalization of Fannie Mae and Freddie [...]

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[...] bailout bill (”Troubled Asset Relief Program”) – this money might well be spent, and I predicted as much when the whole bailout process began – but loan guarantees are a different [...]

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[...] Asset Relief Program. It included about $3,000 per family in spending. And we’ve blogged the wazoo out of it [...]

Vacant Home Solutions Blog » Blog Archive » Do I Want to Be Bailed Out?

[...] packages. Who exactly are they bailing out? Back in September, each family was going to contribute $6,500 to this bailout that was to be $700 billion and now this new stimulus package is going to increase [...]

What is your priority, government, taxes or family? « Plain View

[...] They say that the US Federal government is in debt to the tune of $116,000 for every American family. [...]

AFF Doublethink Online » Open Source Democracy

[...] Budget Office’s cost predictions into cost per person and per family. (The cost of the bailout? $2,000 per person.) Thanks to the efforts of crowdsourcers, Harper says, people can now think “about legislation [...]

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[...] Obama acabó destinando 826,000 millones de dólares a subvencionar sectores quebrados, intervenir la economía y despilfarrar el dinero público. Por cada dólar gastado por el gobierno en 2009, la Casa Blanca destruyó 0,6 dólares de riqueza en el resto de la economía. Se ha calculado que el paquete intervencionista impulsado por Obama tendría un coste de 37,000 dól… [...]

Annoyance 301

Why are you not considered the Great Thinker of your generation? I mean, you saw all this doom and gloom coming ahead of time along with average America. But you have the advantage of being able to count past 100,000. Unlike most of us. So cut my the chase, I am poor and continuing to get poorer because my leaders overspent, over exhausted, under budgeted and outright lied. The fix is to borrow more money from our ‘EX’ sworn enemies and depreciate the US dollar? Thanks for the heads up.

Jarrod

I know this is a little late, or that this post is old, but it is funny to reflect on the situation we were in 4 years ago, and to see that the financial situation of our country is still pretty far off the beaten path. This is either an indication of the HUGE hole we dug ourselves leading up to the market tanking in 2008, or it shows our governmental inability to make adequate corrections to fix this really bad economic situation.

America's Future Foundation | Open Source Democracy

[...] Budget Office’s cost predictions into cost per person and per family. (The cost of the bailout? $2,000 per person.) Thanks to the efforts of crowdsourcers, Harper says, people can now think “about legislation [...]

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