How Big is the Bailout really? ...So far?

As more and more come to the Fed begging for cash, the costs are adding up... According to Barry Ritholz, author of The Big Picture, total federal aid (including the Citi bailout) now equals $4.6 trillion – making the credit-crisis rescue the largest government project in history.

Unfortunately, there are four major concerns I see with the analysis below. First, expenditures from the old "New Deal" of 75 years ago haven't ended yet, and so the figures below are grossly understated, and we are facing an expansion of them once again in economic policy. We still have the agencies, authorities, laws, programs, regulations, and other expenditures and drag on economic growth that has perpetuated since those days. Repeated economic studies have shown that The New Deal actually exacerbated the depth and prolonged the length of The Great Depression.

Second, when we consider where and how to deploy assets today, we must look at the period of increasing regulation and tax rates during the 1960's and throughout the 1970's, resulting in a stagnant economy for over 15 years. The increasing regulatory environment probably killed business growth more than did the high tax rates. This is pendulum swing-back is facing us again today.

Third, one program left out of the costs below would the the 2nd war launched by President Johnson, simultaneous with the War in Vietnam, and that is the War on Poverty. It would be interesting to see what the cost of these entitlement programs have totaled. Some would say the War on Poverty, along with Medicare and Social Security, are simply a continuation of The New Deal Keynesian economics, which ultimately blow-up because they are based on a pyramid scheme of ever-increasing newcomers into the bottom level of the pyramid. This worked fine after WWII, until the baby boomers stopped having children. Fortunately, the U.S. is not in the position of Europe and Japan, where their social programs are causing the government to go bust because there is a declining population, and the pyramid is inverted with more retirees at the top than there are workers to support them. 

Fourth, while this study attempts to equalize the cost of these programs by adjusting them into today's dollars, it would be interesting to see the cost of these programs if those dollars had been invested into the private sector, and instead of growing the dollars at the inflation rate, growing those dollars at the growth rate of the stock market, the businesses that create real wealth in an economy, and that hire and employ people off the streets. That might give a different cost to these items.  To this end, these expenditures need to be categorized into a column for investments (such as the Louisiana Purchase and perhaps NASA), versus wars which are purely consumptive (not to say they aren't necessary), versus expenditures that fall somewhere in the middle, like the Marshall Plan and the New Deal.            

At any rate, it is interesting to put the cost in perspective.  James Bianco of Bianco Research calculated the inflation-adjusted costs of other large government programs throughout history. The current bailout is bigger than the following nine programs... combined.  Total cost: $3.925 Trillion.

Hank Brock is president of Brock and Associates, LLC, a financial consulting firm specializing in asset protection and generational wealth preservation.