11 February 2009
The Bailout and Other Hard Realities
Posted by Joy Bischoff under: World Economy .
Peter Anderson sent me some good info I wanted to share from East Coast Economics. There is more very pertinent information on the link at the bottom.
East Coast Economics
Inflation is caused by an increase in the money supply; the quantity theory of money in its simple form states that the amount of money in an economy multiplied by its velocity equals the real value of goods in the economy times the price level, or M*V = P*Q. So an increase in the money supply, ceteris paribus, should result in an increase in price levels.
The US monetary base has recently seen drastic increases. We haven’t seen rising inflation, though, because all the additional money that the Fed has been printing is getting soaked up by banks upping their reserves. FT Alphaville’s Stacey-Marie Ishmael posted an impressive chart yesterday showing this decrease in the velocity of money.
Putting Things Into Perspective: The Bailout
The government is adding to the bailout tab almost daily, and no slowdown is in sight. The total cost of equity infusions for financial institutions, guarantees and lending facilities to date is estimated anywhere between $4 and $8 trillion, depending on which programs are included in the count. The following chart shows some of the biggest ticket items in the US budget over the last 200 years, adjusted for inflation (i.e. in today’s dollars).
Below is the same chart, this time including the 2008 / 2009 bailout package (using the most conservative end of the range with an estimated total cost to date of $4.3 trillion). For reference, the total cost of World War II to the US was roughly $3.6 trillion.
http://eastcoasteconomics.wordpress.com/
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