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Tuesday, November 25, 2008

US bailouts now more than all major historic government expenditures combined, including WWII. Is inflation far behind?

In a press release today, Calgary-based Agcapita investment director Stephen Johnston cautions investors to brace for inflation as the US bailout totals begin to mount to staggering historic levels.

According to Bloomberg, the latest estimated cost of the ongoing US bailout effort is now approximately US$8.5 trillion, and moving higher almost daily.

"Make no mistake; this is a huge, huge sum by any measure. In fact, it is the largest outlay in American history according to inflation adjusted numbers provided by Bianco Research,” said Johnston.

The current bailout has cost more than all of these major government expenditures combined:

Marshall Plan: Cost: $12.7 billion / Inflation Adjusted Cost: $115.3 billion
Louisiana Purchase: Cost: $15 million / Inflation Adjusted Cost: $217 billion
Race to the Moon: Cost: $36.4 billion / Inflation Adjusted Cost: $237 billion
S&L Crisis: Cost: $153 billion / Inflation Adjusted Cost: $256 billion
Korean War: Cost: $54 billion / Inflation Adjusted Cost: $454 billion
The New Deal: Cost: $32 billion (Est) / Inflation Adjusted Cost: $500 billion (Est)
Invasion of Iraq: Cost: $551 billion / Inflation Adjusted Cost: $597 billion
Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

Total:  US$ 3.92 trillion (inflation adjusted)

According to Bianco, “The only single American event in history that even comes close to matching the cost of the credit crisis is World War II: Original Cost: US$ 288 billion, Inflation Adjusted Cost: US$ 3.6 trillion.”

Johnston goes on to say that “even more worrying is that Bloomberg estimates that by the end of 2010 the final bill could be as much as US$ 10 trillion. The US is clearly committed to inflation as the only way out of its current mess and the rest of world’s central bankers seem committed to following right along.”

Nobel prize winning economist Milton Friedman said that “inflation is always and everywhere a monetary phenomenon.” If Friedman is right, the coming inflation will be spectacular.

(Disclosure: Agcapita investment director Stephen Johnston is my brother. He has an interest in the Western Standard, and I have an interest in Agcapita.)

Posted by Matthew Johnston on November 25, 2008 in Economic freedom | Permalink

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Comments

Matthew,

Not to minimize the significance of what is going on today, but to really compare the costs of these past items you also need to adjust for population. A cost of $100 billion borne by 10 million people is not the same as $100 billion borne by 250 million people. Per capita inflation adjusted numbers are the only real way to compare.

Posted by: Fact Check | 2008-11-25 2:22:23 PM


Here's a response from SJ to your comment, Fact Check:

"Is he saying the bailout is small on a per capita basis?

World War II per capita – 132 million people, $3.6 trillion = US$ 27,000 per capita

Current bailout per capita – 310 million people, $10 trillion – US$ 32,000 per capita

Already bigger than WWII and counting – WW II took 6 years, the bailout has taken less than 6 months.

Cheers,

Stephen

Posted by: Matthew Johnston | 2008-11-25 2:43:56 PM


I'm hoping this is just typical doomsday hype. Remember $200 a barrel oil? If these numbers are real, however, the baby boomers most definitely will not enjoy their retirement. The bill for their partying has come due. With a vengeance.

Posted by: Shane Matthews | 2008-11-25 3:12:20 PM


"According to Bloomberg, the latest estimated cost of the ongoing US bailout effort is now approximately US$8.5 trillion..."

Does Bloomberg substantiate or break down this number as it is well over 10 times the current bailout figure of which only 300,000,000,000 (F... that's a lot of zeros), has been earmarked?

Posted by: John Chittick | 2008-11-25 3:30:42 PM


Matthew,

I told the guys on the radio yesterday about Bloomberg's numbers. They had a hard time believing, at least at first.

CONGRESS THREATENS AMERICA. Indeed!

Posted by: Terrence Watson | 2008-11-25 3:31:17 PM


This is disgusting. We are seeing the market economy crumble before our eyes. Just as the early 1990s were an intellectual paradigm shift for free markets, at least in rhetoric, the late 2000s are becoming a paradigm shift back to statism. As David Brooks wrote in the NYTimes a few weeks ago, "What we are witnessing is the Reagan revolution in reverse and on steroids."

Posted by: Omar Abu Hatem | 2008-11-25 5:29:44 PM


This grossly mischaracterizes the nature of the current bailout. Providing a backstop against losses is not remotely the same as an outright expenditure. Only if the value of every asset the government has taken on goes to 0 will program spending be that high.

For example, Treasury's TARP program, with a ostensive price tag of $700b, involves the government purchasing the debt of and stakes in financial institutions. The ultimate cost of the program will only be the difference between $700b and what the government ends up selling those stakes at on the open market.

Not that I agree with the bailout at all. With the government picking winners and losers like this, creative destruction has been completely short-circuited, so the whole system will be incredibly weak going into the next cycle. And financing government's dramatic increase in debt will crowd out private investment and will lead to slower growth for a generation.

Posted by: Michael Currie | 2008-11-27 8:59:24 AM



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