Monday, March 9, 2009

Comprehending Government Bailouts - The Significance of $1 Trillion

Humans have no way to relate to the number one trillion. Yet, we hear the number an increasing amount of times, especially as it impacts the US economy. One way to illustrate the enormity of one trillion is to think of it as it relates to time. One million seconds is about 11.5 days. One billion seconds is 32 years, and one trillion seconds is 32,000 years. Starting to get the picture?

James Hamilton identified the following information to make the number more real as it relates to finance:

"A trillion dollars is about the total amount collected in income taxes by the U.S. federal government in fiscal year 2006. So if you want to know what an additional trillion dollars in government borrowing or spending means, just imagine what it would be like to pay twice as much in federal income taxes for one year."

Thus, the President’s proposed budget calling for deficits of $1.75 trillion for 2009 and an additional $1.17 trillion for 2010 would be the equivalent of doubling your tax bill three years in a row.

So what would be another way to spend, say, $1.2 trillion? Here is what the NY Times recommends:

For starters, $1.2 trillion would pay for an unprecedented public health campaign — a doubling of cancer research funding, treatment for every American whose diabetes or heart disease is now going unmanaged and a global immunization campaign to save millions of children’s lives.

Combined, the cost of running those programs for a decade wouldn’t use up even half our money pot. So we could then turn to poverty and education, starting with universal preschool for every 3- and 4-year-old child across the country. The city of New Orleans could also receive a huge increase in reconstruction funds.

The final big chunk of the money could go to national security. The recommendations of the 9/11 Commission that have not been put in place — better baggage and cargo screening, stronger measures against nuclear proliferation — could be enacted. Financing for the war in Afghanistan could be increased to beat back the Taliban’s recent gains, and a peacekeeping force could put a stop to the genocide in Darfur.

All that would be one way to spend $1.2 trillion.

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