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As of last count, the expected total cost of federal bank bailouts is... wait for it... $40bn. That's right, $40bn. Close to $800bn was allocated to the effort, about half of which has actually been lent so far, but it looks like the actual cost to the federal Treasury, including all of the capital injections (those are loans) into AIG ($180 bn) and the auto industry ($40bn), will be pleasantly small change. I would say surprisingly, except for the fact that this was what a number of economists led us to expect, so it's not particularly accurate to call it a surprise. Essentially all of that $40bn loss, by the way, comes from losses incurred by AIG and the auto industry - the loans to banks are making a small profit, and the Treasury expects that to continue to do so until the Treasury can get back out of the business of loaning money to banks to keep them from failing.
We're not out of the woods by any stretch, though. Unemployment is still at a level not seen since the early thirties. And an awful lot of it is structural, not cyclic - we just don't need as many people building houses in Las Vegas as we had from 2000 to 2005. There aren't enough people there to live in them, and if people move there, there isn't enough water there for them to drink, and if they build the water infrastructure, there's still no work there other than, well, building houses. Which is a problem. If it were a less fundamentally expensive place to live, that could be finessed, but deserts are not cheap places to make habitable. And the problem for the broader economy is that it's going to take a while for organic economic growth to figure out profitable ways to use all of those out of work people and create new jobs for them to take on. That might happen faster with some sort of jobs stimulus effort, but that's difficult - let's say we go fund a large number of new civil infrastructure projects. Then we would have a bunch of repaired infrastructure (which is very good - too many of our roads and bridges and long-haul electrical and water transmission systems are in very poor shape), but if we're actually delivering noticeable numbers of jobs by backing those infrastructure projects, then once they're completed, we still have a bunch of people out of work who were working on infrastructure projects up until the time they finished them. So federal infrastructure spending can move the too-many-workers-in-an-industry problem around (in time), but it can't actually solve it. Which makes effective stimulus tricky. Worse yet, people in a contracting industry tend not to leave it as fast if the industry is being actively propped up - after all, they can see that the jobs situation near them is awful, and assume that it can't possibly be any better anywhere else, so they hold on to their job for dear life. And once the industry has government support, more people try to go into it, which leads to even more people spending their lives doing things that aren't actually profitable. Ugh. Which is a lot of how the federal government ends up subsidizing dying industries for decades.
Besides the first world jobs situation (this is not just a US problem, by any means), there's another problem still out there looking for a place to roost. The US Fed, and other central banks around the world, have dropped interest rates to extremely low levels in our attempts to avoid a much more serious Depression. This effort seems to have been successful - those unemployment levels not seen since the early 30s are still much, much better than they were in the early 30s, and we are not today causing the same kind of mass hunger and homelessness problems that we had then. (That may not be so much comfort if you or yours have been involuntarily out of work for months and are not seeing many options, but it really is much, much better - the worse things are for everyone else, the harder it is to climb back out for the folks who have really, really lost). But at some point rates will need to start climbing back to more normal levels if we want to avoid another bubble like the housing bubble that just crashed. But raising interest rates will also slow the pace at which job growth is expanding, which doesn't make anyone particularly happy, either. The US Fed is currently signaling that 2010 is probably when they will start to raise rates.
But next time someone starts talking to you about the US pissing $700bn away to keep banks afloat? They're wrong. Wildly wrong. The US loaned banks, the auto industry, and the largest insurer in the world close to a trillion to keep cash being a useful commodity. And, so far, is getting almost all of that back. That is pretty damned impressive.
We're not out of the woods by any stretch, though. Unemployment is still at a level not seen since the early thirties. And an awful lot of it is structural, not cyclic - we just don't need as many people building houses in Las Vegas as we had from 2000 to 2005. There aren't enough people there to live in them, and if people move there, there isn't enough water there for them to drink, and if they build the water infrastructure, there's still no work there other than, well, building houses. Which is a problem. If it were a less fundamentally expensive place to live, that could be finessed, but deserts are not cheap places to make habitable. And the problem for the broader economy is that it's going to take a while for organic economic growth to figure out profitable ways to use all of those out of work people and create new jobs for them to take on. That might happen faster with some sort of jobs stimulus effort, but that's difficult - let's say we go fund a large number of new civil infrastructure projects. Then we would have a bunch of repaired infrastructure (which is very good - too many of our roads and bridges and long-haul electrical and water transmission systems are in very poor shape), but if we're actually delivering noticeable numbers of jobs by backing those infrastructure projects, then once they're completed, we still have a bunch of people out of work who were working on infrastructure projects up until the time they finished them. So federal infrastructure spending can move the too-many-workers-in-an-industry problem around (in time), but it can't actually solve it. Which makes effective stimulus tricky. Worse yet, people in a contracting industry tend not to leave it as fast if the industry is being actively propped up - after all, they can see that the jobs situation near them is awful, and assume that it can't possibly be any better anywhere else, so they hold on to their job for dear life. And once the industry has government support, more people try to go into it, which leads to even more people spending their lives doing things that aren't actually profitable. Ugh. Which is a lot of how the federal government ends up subsidizing dying industries for decades.
Besides the first world jobs situation (this is not just a US problem, by any means), there's another problem still out there looking for a place to roost. The US Fed, and other central banks around the world, have dropped interest rates to extremely low levels in our attempts to avoid a much more serious Depression. This effort seems to have been successful - those unemployment levels not seen since the early 30s are still much, much better than they were in the early 30s, and we are not today causing the same kind of mass hunger and homelessness problems that we had then. (That may not be so much comfort if you or yours have been involuntarily out of work for months and are not seeing many options, but it really is much, much better - the worse things are for everyone else, the harder it is to climb back out for the folks who have really, really lost). But at some point rates will need to start climbing back to more normal levels if we want to avoid another bubble like the housing bubble that just crashed. But raising interest rates will also slow the pace at which job growth is expanding, which doesn't make anyone particularly happy, either. The US Fed is currently signaling that 2010 is probably when they will start to raise rates.
But next time someone starts talking to you about the US pissing $700bn away to keep banks afloat? They're wrong. Wildly wrong. The US loaned banks, the auto industry, and the largest insurer in the world close to a trillion to keep cash being a useful commodity. And, so far, is getting almost all of that back. That is pretty damned impressive.
