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Tuesday, October 07, 2008
The Cost of TARP, Dollars and Opportunity
 Stan Collender ponders the bottom line of the Troubled Asset Relief Program (AKA "TARP", AKA "Wall Street Bailout", AKA "financial rescue", AKA "Just Trust Us") and what it means for the next administration inthis week's Fiscal Fitness column.
Because of TARP, my estimate is that the budget deficit could easily reach or exceed $1 trillion this year. This includes my estimate of a $600 billion? deficit before TARP and an additional $400 billion afterwards. A deficit of? that size would be between and 6 percent and 7 percent of gross domestic? product, a level that hasn't been reached since fiscal 1942-1946 when the? United States was fighting and paying for the direct costs of World War II.
But the bigger cost of TARP may well be less in dollar terms than in? making progress in other areas. A $1 trillion, 7-percent-of-GDP deficit? likely will chill most of the spending and taxing plans of whoever is? elected as hoped-for tax cuts and spending increases have to be delayed.? There could even be a big push for deficit reductions if the market reacts? very negatively to the 1-year, 10 percent increase in the national debt and? interest rates are pushed higher by the bond market vigilantes that were so? evident at the start of the Clinton administration.?
Image by Flickr user fortinbras used under a Creative Commons license
Posted by Craig Jennings
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