Bailout Price Tag: $3.5T and counting

The US dollar gold price should remain at a decent level during the current deflationary period, due to the store of value aspect and the continued existence of geopolitical issues. Apparently, gold (and/or gold mining stocks) held up even during the great depression, but I haven't looked it up myself (to verify) - "The stock price of this gold mining company soared relentlessly upward during the entire bear market. Homestake Mining stock rose continuously from $80 in October 1929 to $495 per share in December 1935 - which represents a total return of 519% (excluding cash dividends) during the devastating bear market period." Who knows, maybe it's a bit more complex this time around, with hedge funds, severe credit crisis, post World War II economy (which is now focused on the US dollar as the world reserve currency), etc. Nevertheless, we are still doing well in regards to the Canadian gold price, at $883 Cdn per oz. At the rate of US bailout spending alone, if gold mining companies stay strong over the longer term they should benefit eventually from pending inflation or hyperinflation and debasement of the US dollar. Unfortunately, gold's US dollar performance has been extremely disappointing during this current period, due to the large sums of money flowing into the US dollar. The US dollar strength is killing everything right now.

Here is the article:

Bailout Price Tag: $3.5T So Far, But 'Real' Cost May Be Much Higher

Posted Nov 12, 2008 10:16am EST by Aaron Task in Newsmakers, Recession, Banking
Related: AIG, FNM, FRE, XLF, ^DJI, ^GSPC, C

While the government is clearly spending a lot of taxpayers' money to bail out financial firms, the tally is even bigger than most Americans (economists and pundits included) are probably aware or willing to admit.

The bailout bonanza has gotten so big and happened so fast it's the true cost often gets lost in the discussion. Maybe Hank Paulson and Ben Bernanke prefer it that way because the tally so far is nearly $3.5 trillion, and that's before a likely handout for the auto industry.

Yes, $3.45 trillion has already been spent, as Bailoutsleuth.com details:

$2T Emergency Fed Loans (the ones the Fed won't discuss, as detailed here)

("The Fed refusing to reveal who received almost $2 trillion in non-TARP loans, or what collateral it has accepted from 'emergency' loans made to struggling firms, as Bloomberg reports.")


$700B TARP (designed to buy bad debt, the fund is rapidly transforming as we'll discuss in an upcoming segment)

$300B Hope Now (the government's year-old attempt at mortgage workouts)

$200B Fannie/Freddie

$140B Tax Breaks for Banks (WaPo has the details)

$110B: AIG (with it's new deal this week, the big insurer got $40B of TARP money, plus $110B in other relief)

Tallying up the "true" cost of the bailout is difficult, and won't be known for months if not years. But considering $3.5 trillion is about 25% of the U.S. economy ($13.8 trillion in 2007) and the U.S. deficit may hit $1 trillion in fiscal 2009, hyperinflation and/or sharply higher interest rates seem likely outcomes down the road.

At the very least, the possibility of the U.S. losing its vaunted Aaa credit rating -- which determines the Treasury's borrowing costs -- cannot be discounted.

Moody's has already said it's not in jeopardy of being lowered. But we really can't put much stock in what Moody's -- or S&P or Fitch -- say after the subprime debacle, can we? More importantly, the price of credit default swaps on U.S. government debt has been on the rise since the bailout train got rolling, as Barron's reports.