Tuesday, 31 March 2009

U.S. bailout pledges (so far) approaches annual GDP

Some years ago when I was running a business I recall a conversation with my accountant at the time as to what would be an excessive level of debt for any business. I cannot recall the exact details about interest rates and debt service/income ratios, but the bit that does stick in my mind was his suggestion that it would be highly imprudent for one's total debt to ever exceed one's total annual revenue.

If you think of the total annual revenue as the GDP or Gross National Income (they are closely enough related for current purposes) then the amount committed by the US taxpayers (so far) to bailing out their economy (as well as a few foreign banks when most people were looking the other way) is now approaching the level of being "highly imprudent" - at least according to the rather parochial reference point I have cited.

The following comes from a recent release from Bloomberg

The U.S. government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

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