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Bailout may cost trillions ... or not

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Even with all the intervention so far, the prices of assets such as houses and stocks have been falling in 2008, and the confidence of consumers and businesses has been shaken. The results are tighter credit conditions and cutbacks in consumer spending, which in turn have contributed to a rising tide of job losses.

The high-stakes strategy of policymakers for both President Bush and President-elect Obama is to spend big to stop that tailspin. The more successful they are, the lower the final cost of the bailout will be. But either way, they reckon this course is the least damaging one for the US economy.

"In this crisis, doing too little poses a greater threat than doing too much," Lawrence Summers, who will head Mr. Obama's National Economic Council, wrote in the Washington Post Sunday.

A deep erosion of the job base would affect Americans for years to come and would have its own negative impact on US tax revenues.

Even if the final bailout tab is above $2 trillion, that in itself is not a threat to the value of the US dollar or to the US Treasury's credit rating, economists say. The great fiscal burden hanging over America is still the long-term cost of entitlement programs such as Medicare, not the cost of a single recession.

By some estimates, the unfunded promises for those social-insurance programs now exceed $56 trillion – far beyond any tally for financial rescues.

As for that $8 trillion bailout figure, very little of that represents actual spending so far, although it has become a popular talking point.

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