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Government's role in economy getting too big?

The US may have headed off a deeper recession by investing hundreds of billions into major companies. But it drives up deficits and creates uncertainty among investors.

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President Obama speaks about Chrysler's bankruptcy filing in Washington on Thursday, April 30. The US has bailed out several of the country's largest companies, including General Motors, Bank of America, and AIG.

Kevin Lamarque/Reuters

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The US government is undertaking a historic expansion of its role in American industry with interventions that are economically risky, even as it aims to cushion America from a deep recession.

Chrysler’s bankruptcy filing last week underscores the depth of the federal government’s involvement in some of the biggest names in American business, from General Motors to Citigroup.

Neither President Obama nor President Bush before him espoused any desire to run car companies or banks. But the federal role is rising all the same, based on the concern that the failure of vital companies could cause lasting damage to the economy.

Collectively, the actions mark a level of government involvement in managing the economy not seen in decades, some economists say. The dangers are significant. The government could delay rather than speed up the revival of these industries. Bailout costs could burden the US economy for years to come.

At the very least, federal intervention creates an element of doubt among key actors in the marketplace as businesses and investors struggle to predict what the government will do next.

“This creates huge uncertainty,” says Dan Ferris, an editor at Stansberry & Associates Investment Research in Baltimore. “The whole nature of TARP [Troubled Assets Relief Program] from the beginning has been this moving target.”

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