The Corner

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If $1.6 Trillion Can’t Get the Economy Going . . .


 . . . there is only one thing to do: Spend more.

According to the Washington Post, “House Speaker Nancy Pelosi said yesterday that the federal government may have to spend even more money to shore up the nation’s ailing economy, on top of the more than $1.6 trillion so far approved by Congress.”

The article continues, “Pelosi’s remarks came after senior House Democrats met behind closed doors with four prominent economists, who praised the actions taken by Washington to ease the effects of a recession that threatens to be the most severe since the 1930s.” I thought we were done with closed-door meetings?

Here is a list of all the bailout/stimulus measures since last September:

AIG Bailout:

On Sept. 16, the Fed loaned AIG $85 billion.

The Fed extended another $38 billion in credit on Oct. 9.

On Nov. 9 the loans were restructured, interest rates were reduced, and the Treasury chipped in $40 billion to purchase preferred stock in AIG.

March rescue of AIG: $75 billion

Federal Takeover of Freddie and Fannie:

Originally the government allowed $100 billion per GSE, so Freddie and Fannie were given $200 billion (paid by Treasury). In addition to the government takeover, which CBO estimates will increase the federal government’s net liabilities by $238 billion, several government agencies have taken steps to increase liquidity within Fannie Mae and Freddie Mac. Among these steps:

1. Federal Reserve purchases of $23 billion in GSE debt (out of a potential $100 billion) and $53 billion in GSE-held mortgage backed securities (out of a potential $500 billion).

2. Federal Reserve purchases of $24 billion in GSE debt.

3. Treasury Department purchases of $14 billion in GSE stock (out of a potential $200 billion).

4. Treasury Department purchases of $71 billion in mortgage backed securities

5. Federal Reserve extension of primary credit rate for loans to the GSEs

The original $100 billion amount was recently increased to $200 billion per GSE.

TARP: $700 billion ($350 billion for dispersal in 2008, the rest in 2009)

Stimulus Package: $580 Billion appropriated (this is $789 billion minus the tax provisions in the bill)

Placeholder for more financial rescue in FY2009 under Obama’s FY2010: $250 billion

Foreclosure:  $75 Billion

Omnibus bill: $31 billion, or 8 percent, more than the total funding in the fiscal 2008 versions of the nine bills in the package.

How much more do Pelosi and these prominent economists need before they understand that you cannot spend your way out of this crisis?

— Veronique de Rugy is an economist at the Mercatus Center at George Mason University.