Modern Money Operations  

George W. Bush's presidency cost the country about $11.5 trillion, if we estimate liberally.  Of course, it's debatable how much blame the president should bear.

$150 billion surplus disappears

Over the past eight years, we've suffered calamities that were bound to damage the nation deeply: two recessions, the most lethal terrorist attacks ever on U.S. soil, the invasion of Iraq on dubious grounds, the near destruction of one of our most storied cities and, finally, the Wall Street meltdown.

Because the median U.S. household income is about $50,000, readers may have trouble grasping the concept of spending trillions.

 For context, let's compare two cases of extraordinary spending under Bush.

After the Sept. 11 attacks, Washington pledged $22 billion to help rebuild in lower Manhattan. At the time, that sum sounded enormous. It was more than one-fourth of the $80 billion budget that New York state had adopted a month before. Though some called for even more aid, the country at large was satisfied that this response was adequate to cope with calamity on a colossal scale.

 Oh, how far we've come.

 In early October of 2008, Congress appropriated $700 billion to rescue Wall Street's financial institutions. Once that was done, the sky was the limit, and the numbers became dizzying.

 And the spending won't stop after Bush leaves office Jan. 20.

 Debt for future generations

 In hopes of "breaking the momentum" of the current recession, President-elect Barack Obama is reportedly drafting a stimulus package that would cost the government as much $850 billion. If past is precedent, it's unlikely Obama will stop there.

 Talk back: Where should we cut future U.S. spending?

 The new administration is already expected to inherit a $1.2 trillion deficit from Bush. The stimulus package would add to that record-breaking number.

 What should Obama do?

 Picture an avalanche of cash disappearing into the Potomac.

Where has all the money gone? Here are five areas where Bush has approved massive outlays of taxpayer money. outlays of taxpayer money.

 Wall Street bailouts: $6 trillion

 When the real-estate bubble burst, Wall Street collapsed, too. Starting with Bear Stearns in March, investment banks fell like dominoes, done in by overexposure to mortgage-backed securities. We're still sifting through the damage. But we know U.S. taxpayers are among the biggest losers.

 In hopes of stanching the bleeding, the federal government has spent or put at risk approximately $6 trillion. True, a big part of that number reflects the government's purchase of securities that may actually yield a profit one day. Critics of this enormous commitment will point out that it has yet to produce any solid evidence of a turnaround in the economy's slide, while the Bush administration's apologists argue that, without such a commitment, the news would have been much worse.

 The best-known aspect of this epic spending spree is the U.S. Treasury's $700 billion Troubled Assets Relief Program, whose remit has included purchasing so-called toxic securities, giving banks cash and helping Detroit automakers avoid bankruptcy.

But TARP, as the program is known, is just the tip of the iceberg.

 The Treasury also gave $300 billion in guarantees for struggling Citigroup, poured $200 billion into Fannie Mae and Freddie Mac when officials seized the mortgage giants to prevent their bankruptcy, and granted an additional $50 billion in temporary guarantees to keep investors from pulling out of money market funds. Again, a guarantee doesn't necessarily mean the Treasury will actually spend the money. But that money is at risk, and that's taxpayer money.

 The Federal Reserve has also been busy. Central bankers have said they could purchase as much as $1.3 trillion of commercial paper from nonfinancial companies to make sure businesses have the working capital they need in an environment where banks are hesitant to lend. The Fed has committed an additional $1 trillion to a variety of credit facilities designed to encourage banks to loosen up, from outright loans to banks, to purchases of securities backed by consumer credit, to $600 billion to buy securities backed by prime mortgages -- a move that knocked standard home loan rates down to 5%.

 And there's more.

 Among other federal rescue measures we have the Federal Deposit Insurance Corp.'s decision to guarantee as much as $1.4 trillion in interbank loans, $300 billion for the Federal Housing Administration to insure mortgages in danger of foreclosure and a $150 billion aid package for insurance giant American International Group.

A lot of the guarantees that have been made will never come into play; just making a guarantee usually does the trick, if it's the Federal Reserve speaking. Here is some more good news: Some of the government's crisis-related investments may actually prove profitable. Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities in Washington, believes the government could see a profit of $500 billion from stock dividends and the appreciation of stocks. Just remember, that's peanuts in this game.

 There are other variables that complicate the picture on a similar scale. The federal government is on the hook for $5 trillion of debt that Fannie Mae and Freddie Mac underwrote. The two companies themselves hold only a third of that debt, Kogan said, so it's unclear what the taxpayer's ultimate liability will be there.

 Also unclear is how the Wall Street bailout money is being spent. The Treasury has been reluctant to monitor how banks are using TARP funds, and the Fed has refused to name the recipients of its loans, arguing that naming names would undermine the health of the companies in question.

 "It's a lot of money going out the door, with basically no public knowledge of it whatsoever," said Dean Baker, a co-director of the Center for Economic and Policy Research in Washington.

 About $600 billion of the Fed's $1.3 trillion plan to buy commercial paper has been spent, Baker said. But the Fed won't say who has received that cash.

 "People are making and losing fortunes depending on whether the Fed will buy their commercial paper," Baker said. "We should know what they're doing."

 Iraq and Afghanistan: $3 trillion

 The searches for Osama bin Laden in Afghanistan and for weapons of mass destruction in Iraq have morphed into occupations. So far, the U.S. has spent around $860 billion on both, according to the Congressional Budget Office.

 But Harvard University professor Linda Bilmes and Nobel laureate Joseph Stiglitz of Columbia University say the agency is underestimating the tab. In their book, "The Three Trillion Dollar War" they claim Iraq will be far costlier.

 Modern technology and medicine have kept U.S. deaths in these conflicts low, compared with previous wars, but tens of thousands of wounded soldiers will require taxpayer-supplied health care for years, said Bilmes, who served as an assistant secretary of commerce in the Clinton administration. Factoring in those benefits, replacement of worn-out hardware and other hidden bills, Bilmes and Stiglitz believe the real price for Iraq is $3 trillion.

That money hasn't been reinvested in the U.S. economy as mush as possibly expected, partly because of outsourcing by U.S. companies, Bilmes said. One example is construction company KBR, which used shell companies in the Cayman Islands to avoid payroll taxes.

 "A dollar that is spent on a road is a dollar which has a multiplier," Bilmes said. "You have better roads. Whereas a dollar spent on a Malaysian contractor to do laundry doesn't help the U.S."

 Tax cuts and deficit spending: $2 trillion

 In 2001 and 2003, Bush signed legislation that cut taxes, much to the benefit of the affluent. The first cut was designed to help the economy after the Internet bubble collapsed. The second was to boost growth after the 2001 recession ended.

 Kogan estimated the tax cuts have cost the Treasury $1.7 trillion in revenue to date. Of course, that may not be one bit disturbing to the taxpayers who've watched their tax bills go down. The only problem is, the cuts have been critical in opening up the gargantuan budget gap that Obama will face.

 Because Bush did not reduce spending, Washington has paid about $265 billion in interest on loans to cover the lost revenue. So the $1.7 trillion in tax cuts really cost around $2 trillion.

 Meanwhile, Bush increased deficit spending, incurring more debt service. Bush's expansion of Medicare drug benefits for the elderly, for example, cost around $130 billion, of which $10 billion was debt service between 2006 and 2008, said Kogan, of the Center on Budget and Policy Priorities.

 "If some of this spending had been paid for by tax increases, then there wouldn't have been interest costs," he said. "But none of it was. We had tax cuts and spending increases."

 In an e-mail, Treasury Department spokeswoman Brookly McLaughlin said Bush's tax cuts had helped the economy by allowing people to keep more of their wages and other earnings, increasing incentives to work, save and invest.

 McLaughlin also cited an Office of Management and Budget/Haver Analytics study that compared federal spending as a share of gross domestic product under Bush and Franklin D. Roosevelt. Under Bush, spending grew from 18.4% of GDP in fiscal 2000 to 20.7% in fiscal 2008, the study said. FDR increased spending from 6.3% in fiscal 1932 to 43.6% in fiscal 1944.

 Of course, Roosevelt was dealing with a full-blown depression and war against Germany and Japan.

Hurricanes Katrina and Rita: $270 billion

When Hurricane Katrina hit the Gulf Coast in 2005, New Orleans' levees gave way, and the city was inundated. Stories of survivors trapped in the Superdome and incompetence at the Federal Emergency Management Agency transformed the natural disaster into a national disgrace.

 Katrina, along with Hurricane Rita soon after, cost about $270 billion, by some estimates. In Louisiana alone, officials said the hurricane destroyed $100 billion in property, shrank the state's economy by $80 billion and required $20 billion in local emergency relief.

 Those figures don't include damages in other states, including communities that absorbed refugees fleeing the city. They also don't count the continuing costs of rebuilding the Big Easy.

FEMA has given $50 billion to Gulf Coast states, a spokesman said. The Army Corps of Engineers is spending $14 billion to upgrade levees, according to the agency's Web site.

Meantime, the Louisiana Recovery Authority is spending $10 billion in recovery efforts that include homeowners retrofitting their houses, for example.

 "People are adding storm shutters and roof tie-downs so that they can make their homes more resilient," said Christina Stephens, an agency spokeswoman. "We're encouraging them to mitigate future loss."

 9/11: $260 billion

 New York City lost about $95 billion because of the Sept. 11 attacks, according to a 2002 report by City Comptroller William Thompson Jr.

 That price tag includes costs associated only with New York: $22 billion to replace the World Trade Center, $65 billion in lost economic activity in the three years after the attacks and $9 billion in the human potential that disappeared when the hijackers killed 2,819 people in Manhattan -- a calculation that illustrates why economics is called the dismal science. It does not include Washington's $22 billion in aid.

 Outside New York, the tragedy cost plenty. Kogan estimated that Bush spent about $140 billion on related nonmilitary measures, such as the creation of the Department of Homeland Security.

 The approximate total of $260 billion does not include the damage wrought and lives lost on 9/11 at the Pentagon or in Pennsylvania, or money spent on preparedness by state and local governments and private industry. It also doesn't include the continuing losses associated with the vacant World Trade Center site, which housed as much office space as downtown Atlanta.

 In other words, we're still paying for 9/11.

 Produced by Elizabeth Daza / Graphics by Sean Enzwiller

Published Jan. 14, 2009