Bipartisan Bank Bailout Helped Avert Possible Depression

Rescue Efforts Helped Avert “Great Depression 2.0.” From Bloomberg: “The U.S. response to the financial crisis probably prevented a depression, slowed a decline in gross domestic product and saved about 8.5 million jobs, economists Alan Blinder and Mark Zandi said. Policies including the government fiscal stimulus, bailouts of financial companies, bank stress tests and the Federal Reserve’s purchase of mortgage-backed securities to lower interest rates ‘probably averted what could have been called Great Depression 2.0,’ Blinder and Zandi said in a report dated yesterday. Without those measures, the U.S. would have deflation, they said.” [Bloomberg, 7/28/10]

On National Television, “President Bush Strongly Urged Lawmakers To Pass His Administration’s $700 Billion Bailout For The Financial Markets” In 2008. As reported by MarketWatch: “President Bush strongly urged lawmakers to pass his administration’s $700 billion bailout for the financial markets on Wednesday, spelling out dire risks to the U.S. economy if Congress doesn’t act quickly. ‘We’re in the midst of a serious financial crisis,’ Bush said in a nationally televised address. ‘Our entire economy is in danger,’ as a result of the credit crunch, he said, and inaction on the plan could result in a ‘long and painful recession.’” [MarketWatch.com, 9/24/08]

• Congress Passed The Bailout With Significant Bipartisan Support. According to the New York Times: “The Senate approved the bailout measure on Oct. 1, 2008, on a bipartisan vote of 74 to 25. The House initially rejected the proposal, but under prodding from the White House and leading members of both parties, House members ultimately voted 263 to 171 for the bill, with 91 Republicans joining 172 Democrats in backing it; 108 Republicans and 63 Democrats voted no.” [New York Times, 7/11/10]

Bailouts Have Not “Added Significantly To The Debt.” An analysis by FactCheck.org concludes “it’s not the case at all” that the bailouts “added significantly to the debt.” According to the Congressional Budget Office: “CBO estimates that the net cost to the federal government of the TARP’s transactions, including the cost of grants for mortgage programs that have not been made yet, will amount to $32 billion. CBO’s analysis reflects transactions completed, outstanding, and anticipated as of February 22, 2012. That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding home foreclosures: CBO estimates a cost of $56 billion for providing those three types of assistance. But not all of the TARP’s transactions will end up costing the government money. The program’s other transactions with financial institutions will, taken together, yield a net gain to the federal government of about $25 billion, in CBO’s estimation.” [FactCheck.org, 6/15/12; Congressional Budget Office, 3/28/12]

Failure To Raise The Debt Ceiling Could Have Had Severe Economic Consequences

Debt Ceiling Does Not Determine U.S.’ Debt Level; It Is “A Limit On The Ability Of The Federal Government To Pay Obligations Already Incurred.” According to the Government Accountability Office: “The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred. While debates surrounding the debt limit may raise awareness about the federal government’s current debt trajectory and may also provide Congress with an opportunity to debate the fiscal policy decisions driving that trajectory, the ability to have an immediate effect on debt levels is limited” [GAO.gov, 2/22/11]

Failure To Raise Debt Ceiling Could Have Resulted In Default Or Had Other Severe Economic Consequences. From CNNMoney: “A failure to raise the debt ceiling would likely send shockwaves through the underpinnings of the financial system — and possibly ripple out to individual investors and consumers. The federal government would be forced to prioritize its payments. It would risk defaulting on its financial obligations. And if that happens, credit rating agencies would downgrade U.S. debt.” [Money.CNN.com, 7/21/11]

Debt Limit Has Been Raised Over 90 Times Since 1940. From the Center on Budget and Policy Priorities: “Before World War I, Congress generally had to approve each separate issuance of federal debt. Since then, the limit has evolved into an overall dollar cap on the amount of debt the federal government can incur.  Since 1940, Congress has enacted 91 separate increases in the statutory debt limit, an average of one every nine months (though individual increases lasted anywhere from three days to eight years).” [CBPP.org, 7/21/11]

Bush Policies And Recession Caused Debt To Skyrocket

Prior To President Obama’s Inauguration, President Bush Had Already Created A Projected $1.2 Trillion Deficit For Fiscal Year 2009. From the Washington Times:  “The Congressional Budget Office announced a projected fiscal 2009 deficit of $1.2 trillion even if Congress doesn’t enact any new programs. […] About the only person who was silent on the deficit projection was Mr. Bush, who took office facing a surplus but who saw spending balloon and the country notch the highest deficits on record.” [Washington Times, 1/8/09]

NYT: President Bush’s Policy Changes Created Much More Debt Than President Obama’s. The New York Times published the following chart comparing the fiscal impact of policies enacted under the Bush and Obama administrations:

[New York Times, 7/24/11]

Recession Added Hundreds Of Billions In Deficits By Increasing Spending On Safety Net While Shrinking Tax Revenue. The Center on Budget and Policy Priorities (CBPP) explains: “When unemployment rises and incomes stagnate in a recession, the federal budget responds automatically: tax collections shrink, and spending goes up for programs like unemployment insurance, Social Security, and Food Stamps.” According to CBPP: “The recession battered the budget, driving down tax revenues and swelling outlays for unemployment insurance, food stamps, and other safety-net programs. Using CBO’s August 2008 projections as a benchmark, we calculate that the changed economic outlook alone accounts for over $400 billion of the deficit each year in 2009 through 2011 and slightly smaller amounts in subsequent years. Those effects persist; even in 2018, the deterioration in the economy since the summer of 2008 will account for over $300 billion in added deficits, much of it in the form of additional debt-service costs.” [CBPP.org, 11/18/10; CBPP.org, 5/10/11, citations removed]

Over The Coming Decade, The Bush Tax Cuts Are The Primary Cause Of Federal Budget Deficits. The Center on Budget and Policy Priorities prepared a chart showing the deficit impact of the Bush tax cuts (orange), the Iraq and Afghanistan wars, the recession itself, and spending to rescue the economy:

[CBPP.org, 5/10/11]

CBPP: Bush Tax Cuts And Wars Are Driving The Debt. According to the Center on Budget and Policy Priorities:

The complementary chart, below, shows that the Bush-era tax cuts and the Iraq and Afghanistan wars — including their associated interest costs — account for almost half of the projected public debt in 2019 (measured as a share of the economy) if we continue current policies.

[Center on Budget and Policy Priorities, 5/20/11]