While we here in the Budget Brigade are thankful that our respective alma mates are poised to clinch BCS bowl berths (hook 'em, Horns!), we are even more thankful that President Elect Obama has serious concerns about the current BCS system. That's change we can believe in!

The Budget Brigade will return to the BudgetBlog on Monday.

Have a great Thanksgiving and enjoy the day.

Image by Flickr user Jennifer13 used under a Creative Commons license.

Updated: See below.

The number most commonly-associated with the federal government's role in bailing out the nation's banks (and various other institutions that move money around the economy) is $700 billion -- the amount authorized by Congress for the Treasury Department to spend on...well, that keeps changing...banks generally. But, according to a tally by Bloomberg News, to date, the federal government has put $7.76 trillion of taxpayer funds on the line to shore up the nation's financial network.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department's $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

...

Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government's rescue effort.

The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14.

And if you thought the lack of transparency around Treasury's Troubled Asset Relief Program was disconcerting, this quote from Fed Chair Ben Bernanke will have you reaching for your favorite antacid:

"Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting," Bernanke said Nov. 18 to the House Financial Services Committee. "We think that's counterproductive."

Update: Spoke too soon! Make that $8.56 trillion:

The United States government unveiled $800 billion worth of new loans and debt purchases on Tuesday [Nov. 25], hoping another massive infusion of cash would smooth troubled credit markets and make borrowing easier for homebuyers, small businesses and students.

The Federal Reserve said it would buy up to $600 billion in mortgage-backed assets from government-sponsored mortgage giants Fannie Mae and Freddie Mac. It would buy up to $100 billion in debt directly from the companies and up to $500 billion in mortgage-backed securities.

...

Separately, the Fed and Treasury Department announced a $200 billion program to ease commercial lending on debt like student loans, car loans or business loans. The Fed would lend up to $200 billion to holders of asset-backed securities supported by car loans, credit card loans, student loans, and business loans guaranteed by the Small Business Administration.

Image by Flickr user jurek d. used under a Creative Commons license.

When going to Washington to ask Congress for $25 billion to help you out of jam because your company is going bankrupt, it's probably best to leave the private jet at home.

...the chief executives of the Big Three automakers opted to fly their company jets to the capital for their hearings this week before the Senate and House -- an ill-timed display of corporate excess for a trio of executives begging for an additional $25 billion from the public trough this week.

"There's a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands," Rep. Gary L. Ackerman (D-N.Y.) advised the pampered executives at a hearing yesterday. "It's almost like seeing a guy show up at the soup kitchen in high-hat and tuxedo. . . . I mean, couldn't you all have downgraded to first class or jet-pooled or something to get here?"

The Big Three said nothing, which prompted Rep. Brad Sherman (D-Calif.) to rub it in. "I'm going to ask the three executives here to raise their hand if they flew here commercial," he said. All still at the witness table. "Second," he continued, "I'm going ask you to raise your hand if you're planning to sell your jet . . . and fly back commercial." More stillness. "Let the record show no hands went up," Sherman grandstanded.

Image by Flickr user kilobar used under a Creative Commons license.

House Majority Leader Steny Hoyer (D-MD) provides us with a teaching moment (BNA [$]):

House Majority Leader Steny Hoyer (D-Md.) said Nov. 18 House Democrats still hope to adhere in 2009 to the pay-as-you-go budget rule they put in place at the start of the 110th Congress, but acknowledged the troubled economy and other priorities may outweigh it.

"We will continue to be committed to the principle of pay-as-you-go," Hoyer said at a speech at the National Press Club. "The reality, however, is that recovery legislation will raise the deficit in the short term. Fiscal hawk that I am, I still believe that that is the right course, because a wide consensus of economists tells us that deficit spending is both the way out of a recession like this one and the way to prevent even more catastrophic decline."

Hoyer makes the classic mistake of believing that PAYGO stops all deficit spending. What PAYGO actually does is (theoretically) prevent deficit increases resulting from tax cuts or increases in mandatory spending. Much of the proposed spending in the Senate's latest stimulus package (like unemployment insurance and infrastructure spending) would increase discretionary spending, which does not have to be offset with revenue increases or spending cuts.

However, some of the spending proposals in the Senate package do increase mandatory spending (like increased Medicaid spending) and would have to be offset in PAYGO-land. But to say that this would wreck the economy is, well, just plain wrong.

Keynesian economics tells us that increasing budget deficits (or reducing budget surpluses) spurs economic growth. Fidelity to PAYGO, because it enforces deficit neutrality, would be economically neutral. True: 100 percent deficit-neutral budget changes would be a mistake, as now is the time to increase the deficit to boost economic growth, but adherence to PAYGO would have no impact on the economy.

So, yes, deficit spending is absolutely necessary right now. Adhering PAYGO, however, would not stop Congress from pursuing this course of fiscal policy.

Image by Flickr user foundphotoslj used under a Creative Commons license.

The National Journal has been reporting this week that current Congressional Budget Office (CBO) Director Peter Orszag is in line to head up the Office of Management and Budget in the upcoming Obama administration. Orszag formerly served as a senior economic adviser during the Clinton administration and held a post in the economics studies program at the Brookings Institution.

Orszag has been impressive in his two year stint as the head of the CBO, which he began in January, 2007 and I think he would be an excellent choice to run the OMB for Obama. BudgetBlog readers will certainly know that we have high esteem for Dr. Orszag.

CQ Politics:

[Speaker of the House Nancy] Pelosi [(D-CA)] and Senate Majority Leader Harry Reid , D-Nev. — whose chamber will return for a post-election session next week — have called for Congress to pass an economic stimulus package and Tuesday added plans for billion of dollars in new aid for Detroit's struggling automakers. But Pelosi and House Majority Leader Steny H. Hoyer of Maryland have said they won't bring the House back unless President Bush and Senate Republicans agree to allow a stimulus and the auto industry aid to become law.

In separate statements, House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) asserted the need to hold a post-election session to bolster efforts to help the beleaguered auto industry.

"I am confident Congress can consider emergency assistance legislation next week during a lame-duck session," Pelosi said in a statement, "and I hope the Bush administration would support it."

The Congressional Budget Office reported in its Monthly Budget Review for October that the federal budget deficit for that month will be $134 billion. But CBO predicts that when the Treasury Department releases the official deficit number later this month, it will be $232 billion.

The $98 billion gap is the product of differing interpretations on how purchases under the Troubled Asset Relief Program (TARP) should be scored. According to CBO:

...the stock investment and associated warrants should not be recorded on a cash basis but on a net present value basis, accounting for market risk, as specified in the Emergency Economic Stabilization Act. CBO's preliminary estimate of $17 billion for the present value cost is included in its estimate of $134 billion for the October deficit.

So far, Treasury has purchased $115 billion in bank stocks. Treasury says that this will increase the budget deficit by $155 billion, while CBO says it should increase the deficit by $17 billion.

This is an interesting development, as the potential impact on the budget deficit could be hundreds of billions of dollars, depending on whether Treasury follows the law, and uses a present value calculation -- the method employed in CBO's estimate, or if it continues to use a cash basis of accounting. There are a number of ramifications that could result from these accounting differences.

• A larger budget deficit figure may impose constraints on future fiscal policy
• Cash-basis accounting of these assets deviates from current practice. For example, a student loan is not counted as a cash expenditure, but as an asset, as the government expects to see the principal repaid
• The future sale of purchased bank stock would appear to decrease the budget deficit. This could open the door to manipulation by an administration seeking political gains to be had from decreasing the federal budget deficit.