Calculating the Cost of Wall Street's Rescue

Consider the numbers: $29 billion for the Bear Stearns mess; $700 billion to buy spoiled assets; $200 billion to buy stock in Fannie Mae and Freddie Mac; an $85 billion loan to AIG insurance; another $37.8 billion for AIG; and $250 billion for bank stocks. Hundreds of billions in guarantees to back up money market funds and to guarantee bank deposits. And who knows what expenses are still to come.

Consider the numbers: $29 billion for the Bear Stearns mess; $700 billion to buy spoiled assets; $200 billion to buy stock in Fannie Mae and Freddie Mac; an $85 billion loan to AIG insurance; another $37.8 billion for AIG; and $250 billion for bank stocks. Hundreds of billions in guarantees to back up money market funds and to guarantee bank deposits. And who knows what expenses are still to come.

Though the eventual tally is impossible to pinpoint, some experts suggest the annual deficit -- the amount borrowed to make up the differences between spending and revenue -- will soar. In an early October television interview, Peter Orszag, director of the Congressional Budget Office, forecast that rescue spending and falling tax revenue from a recession could create a $750 billion deficit in the current fiscal year, up from the $455 billion of the just-ended year. The deficit was about $163 billion in 2007. The Concord Coalition, a non-partisan deficit-fighting organization, says next year's figure could exceed $1 trillion. As it approved rescue packages, Congress last summer and this fall raised the debt ceiling to $11.3 trillion from $9.8 trillion. Currently, the debt stands at just over $10 trillion.

The debt is the build-up of annual deficits, which run in cycles, says Marston. During recessions, tax revenue falls along with economic activity, causing deficits to rise. Deficits are typically gauged as a percentage of the gross domestic product, and economists generally worry when this figure exceeds 3%. In 2007, it was 1.2%; in 2008 it jumped to 3.2%. A trillion dollars would be 7% -- or more if the economy shrinks -- the highest since the 6% of the 1980s. Before 2008, deficits had fallen for several years because the relatively strong economy lifted tax revenues. In recent years, the deficit has been relatively low by historical standards. It has averaged just over 4% of GDP since World War II. The budget was in surplus from 1998 through 2001.