Planet Money

So How Big Is $700 Billion, Anyway?

12:27

September 23, 2008

Putting together tape for today's Planet Money podcast, I came across this bit from our interview with China specialist Brad Setser yesterday. We asked Setser whether this $700 billion bailout amounts to real money.

Keep in mind that to economists, $1 million or even $100 million is not an especially large sum. But $700 billion? That's a different deal, Setser says:

:"$700 billion is a very large sum. It's more than the U.S. oil-import bill for a year, significantly more. It's equal to the amount that we borrow from the rest of the world in every given year, which is a very large sum. It's about five percent of U.S. GDP -- it's real money."

Bonus: The Planet Money podcast.

categories: Planet Money Podcast, Understanding The Crisis

12:27 - September 23, 2008

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$700 billion is most definitely "real money". It's real money that could help real families keep their homes, have health care they could depend on, subsidise petrol/energy costs...I could go on.

Instead there are actually arguements being put forward why this sum should go to help people being paid obscene amounts of money to fail at their jobs.

We may be having our own tough times here in England, but the more I read about what's happening in the US, the more I'm convinced living in th UK is definitely the better choice for me.

Sent by Emily | 1:23 PM ET | 09-23-2008

This provides some help in understanding the scope of the proposed bailout -- and that help has been sorely missing from the discussion.

Economics is far from my specialty, but as a science and mathematics educator, understanding scale and whopping big numbers is essential.

Let me step through a little math with you. $700 billion dollars divided by 300 million Americans is $2300/citizen. That's over $9000 for my family of four -- a very substantial portion of our annual household income.

A bailout appears to be necessary, but the rush of government to make its largest financial decision of my life in the course of a few days is truly terrifying.

I have to wonder if history will see the month of September 2008 as the end of America's dominance on the world financial stage.

Sent by Don Duggan-Haas | 1:36 PM ET | 09-23-2008

It is important to understand the size of the numbers being talked about. 1
million is about 1/3 of a cent for each of the roughly 300 million US
citizens. A billion is $3.33 each, while a trillion is $3,333 for each
citizen. This proposed bill raises the debt limit to 11.3 trillion dollars
which amounts to $37,700 for every citizen of America. It sounds like every family has a second mortgage to the tune of $150,000. And that is just the public debt. Add all obligations together and for the US, public and private total debt obligations total three fourths of a million dollars per average family. I had thought the US owes 70 trillion but I was wrong, it is only 53 trillion the world as a whole owe 70 trillion.

Sent by ray | 1:48 PM ET | 09-23-2008

During the S&L default of the 80's, satrist P.J. O'Rourke tried to put the $50B bailout this way (paraphrased from memory). 'It is the equivalent of 35M NYC cab fairs to Saturn and back including tip, or enough money to send every graduating US high school senior to Harvard for four years.' That last metric changed my perception of Government spending and oversight to this day. Let's vote!

Sent by robert | 2:24 PM ET | 09-23-2008

The government wants to give $700B into the hands of people that mismanaged there way into this situation?

If the securities are marginal with both good and bad mortgages rolled together - the creation of a second Resolution Trust Corp. to acquire and hold these securities, and pay the current owners X cents on the dollar. This calms the market, cleans up the balance sheets, and hopefully ensures the individuals that facilitated this mess loose their positions due to poor job performance due to the monetary hit there companies will have to take. These individuals (Entire BoD and VP and above) should be fired "for cause" as a prerequisite to the government purchasing the marginal securities, thus eliminating the need to worry about them receiving golden parachutes.

Part of the bailout must include a portion of the assets set aside for home loans to individuals that are in foreclosure or that have ballooning payments due to resetting ARM's. This assistance would be limited to "home of record" mortgages. This would increase the value of the securities and decrease the number of foreclosures with not bailing out individuals that made speculative investments.

Sent by Mark Luksich | 2:32 PM ET | 09-23-2008

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So How Big Is $700 Billion, Anyway?

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