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Cost Estimates of Fixing US Economy Vary Widely

How much will it cost to spend the U.S. economy back to health? And who will pay the bill? VOA's Kent Klein in Washington asked economists for their insights on those questions.

The U.S. government is spending an unprecedented amount of money to restore the vitality of the country's economy.

The government is implementing a plan to commit more than $770 billion to rescue America's financial institutions. That is on top of $152 billion in tax cuts and economic incentives President George Bush approved earlier this year. The administration has also spent large amounts of money to rescue mortgage lenders Fannie Mae and Freddie Mac, as well as the huge insurance company AIG. More bailouts are being considered for banking giant CitiGroup and U.S. automakers General Motors, Ford and Chrysler.

In addition, the incoming administration of President-elect Barack Obama is proposing a two-year economic stimulus package estimated between $300 billion and $700 billion.

With numbers so large, it is difficult to project the ultimate price of the overall recovery effort. Estimates vary widely, but Gus Faucher, the director of macroeconomics at the Web site Moody's, says the answer will probably contain 13 digits.

"By the time we are finished, I think it is probably going to be somewhere close to $2 trillion, once you include the various stimulus packages and the cost of the various bailouts, which is, needless to say, quite a bit of money," said Gus Faucher.

Even in the world's largest economy, it is difficult, if not impossible, to raise such enormous amounts of capital. So where will the money come from? Gus Faucher says the government will borrow the money, much of it from other countries.

"They are going to be going out and selling bonds, and most of the buyers of those bonds are going to be from overseas," he said. "So, it is going to be foreigners who are buying U.S. bonds, in a sense funding our budget deficit."

Many economists agree that deficit spending is a necessary evil, to get a faltering economy moving again. James Horney, the director of federal fiscal policy at the Washington-based Center on Budget and Policy Priorities, agrees. But he says Mr. Obama and his economic team are right to be concerned about how gigantic spending programs will affect the federal budget in the long term.

"While it is necessary for us to run up these big deficits in the short run, I think it is crucial for President-elect Obama and his team to demostrate how, in the longer run, they are going to put us on a path to reduce those deficits, and President-elect Obama and his team have certainly talked about that," said James Horney.

Another question is whether the U.S. government will be able to recoup the money it is spending to revitalize the economy. Ken Mayland, the president of a research firm called ClearView Economics, says the government has recovered its investment in most previous corporate bailouts.

"When you look back at the so-called 'bailout' of Chrysler in the early '80's, the federal government made money, in the end, made money on that," said Ken Mayland. "There was some kind of assistance to the airlines after 9/11 [the terrorist attacks of September 11, 2001], and there was a return of that. The outlays are going to seem horrendous, but there will be some return."

Part of the economic recovery plan involves the government buying stock in banks, and Gus Faucher says that move could pay for itself in the long term.

"Presumably, they will get dividends on that stock, and then, at some point in the future, the federal government will sell that stock out on the market and make some money off of that. So, in terms of the $700 billion for the bailout, the federal government is likely to get most, if not all of that back, and if things work out," said Faucher. "OK, it is even possible the government can turn a profit there."

But will it work? James Horney says it will, eventually. He believes that while the stimulus packages and bailouts will not immediately stop the recession, they will soften the effects of the economic downturn and will turn the U.S. economy in the right direction.

"I think there is reason to hope that the steps that are being taken and the steps that will be taken in coming months will serve to stabilize the financial markets and stabilize the economy," he said. "That is not to say that we are not going to suffer from a slowdown, that unemployment is not going to go up, but that we will, in fact, start heading toward a turnaround, where [we] can start building the economy back up."

President-elect Obama, as he assembled his economic team, warned the American people that the economy will likely get worse before it gets better. But he hopes that his economic initiatives, added to those President Bush has put in place, will get things moving again.