« Previous Entry | Main | Next Entry »

What is the source of the money for rescuing large financial firms?

Name: Carol Schneier
City & State: Marietta, Ga.

Question/Comment: Thank you for your simplified, insightful, and humorous segments on the NewsHour explaining economic complexities. My question: With the federal government $9.5 trillion in debt, this year's budget deficit projected at $410 billion, and tax revenues insufficient over the past 8 years to cover federal expenditures, what is the source of the money for rescuing large financial firms?

Paul Solman: Borrowing. Economist Ken Rogoff (who was on the NewsHour the other night) estimates that the federal government will have to assume extra debt in the range of $1-2 TRILLION dollars, on top of a current public debt of $5 trillion (owed to states, corporations, individuals, and foreign governments) and almost $5 trillion more owed to other agencies of the U.S. government for obligations like Social Security and Medicare.

Borrowing is paid for with interest, which can be paid with even more borrowing. But ultimately, all the borrowing means more dollars created, which leads to a lower dollar, which costs us all since it means we can't buy as much with what we have. And once the borrowing threatens to become TOO expensive - too high an interest rate, that is - we'll have to raise TAXES to pay down the debt.

In other words, we have met the source of the money for rescuing large financial firms, and it is US.

-- Posted September 19, 2008 | Comments (2) | Permalink