Friday, September 19, 2008

Bail-Outs Will Cost America $1-2 Trillion

Kenneth Rogoff, professor of economics at Harvard University and former chief economist of the International Monetary Fund, thinks the financial crisis will cost American taxpayers between one and two trillion dollars . He writes in the Financial Times:

Were the financial crisis to end today, the costs would be painful but manageable, roughly equivalent to the cost of another year in Iraq. Unfortunately, however, the financial crisis is far from over, and it is hard to imagine how the US government is going to succeed in creating a firewall against further contagion without spending five to 10 times more than it has already, that is, an amount closer to $1,000bn to $2,000bn.

That’s a massive increase, and it’s going to effect everyone somehow.

A large expansion in debt will impose enormous fiscal costs on the US, ultimately hitting growth through a combination of higher taxes and lower spending. It will certainly make it harder for the US to maintain its military dominance, which has been one of the linchpins of the dollar. The shrinking financial system will also undermine another central foundation of the strength of the US economy. And it is hard to see how the central bank will be able to resist a period of allowing elevated levels of inflation, as this offers a convenient way for the US to deflate the mounting cost of its private and public debts.

One and two trillion dollars, and we already have trillions in debt. This nation has serious problems, and we need serious people addressing it. We cannot afford more Republicans running this country.

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