Depending who you ask, the cost of the government’s mother of all bailouts currently stands somewhere just north of a trillion dollars. Throw in all the “we have to help Main Street” and that could double or more. Of course, of the Wall Street portion a big chunk will eventually be paid back.
In the meantime there’s other good news. 30-year Treasury bonds are yielding just under 4.5%. Since the yield curve is currently normal (a good sign in itself), that’s the highest rate government is paying on its debt and that is after the announcement of the spending numbers for the big bailout.
So what’s 42 bucks a month? The cost per US resident of financing and paying off a $2.5 trillion debt with a 30-year amortization at the current 30-year Treasury bond coupon rate. With people throwing around the word “trillion” like it’s going out of style, it’s easy to see the apocalypse around the corner. It’s useful to remember that there are 300 million of us to pay it off and a once in a century type expense doesn’t have to be paid for in six months. To be sure, there still need to be serious strings on all the money and every opportunity should be taken to make the whole fiasco as self financing as possible, but even the worst case isn’t as bad as it appears at first blush. The potential cost is over 1% of GDP annually so, as I noted the other day, the stakes have certainly been raised on passing pro-growth economic policies on all fronts, but the cost of Medicare and Social Security still dwarf this cost. This is a big deal, but there are bigger challenges out there that we’ve known about and shrugged off for years.