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How bailout deal will impact next president

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Pressed by moderator Jim Lehrer to name something specific he would be willing to give up, Obama proposed axing $15 billion in Medicare subsidies to private insurers – a GOP program.

So, why doesn't a $700 billion program mean $700 billion less for a new president to spend? The answer lies in accounting conventions that are often misunderstood – and, critics would add, not well suited to the nation's current financial crisis.

"People will find it hard to believe, but the bailout will have very little impact on the budget or the deficit," says Peter Morici, a business professor at the University of Maryland and the former chief economist at the US International Grade Commission.

What the government is going to do is to sell bonds, get cash and use that cash to buy mortgage-backed bonds originally created by the banks. These bonds will be purchased at a discount and the government will hold them to maturity, says Mr. Morici.

"If the government loses any money, it will be because it overpaid for the bonds – and in any case, the budgetary impact is not large," he adds. "It will be stretched out over several years.

The House Budget Committee tried to get a handle on this issue in a hearing last week with the Congressional Budget Office.

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