Fallout: The Financial Crisis

Raising $700 billion won’t be cheap

Marketplace Staff Sep 22, 2008
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Fallout: The Financial Crisis

Raising $700 billion won’t be cheap

Marketplace Staff Sep 22, 2008
HTML EMBED:
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TEXT OF STORY

KAI RYSSDAL: It’s not like Uncle Sam’s got $700 billion lying around in the petty cash drawer. The government’s going to have to sell Treasury bonds to raise the money. Shouldn’t have too much trouble finding buyers. But there could be some long term consequences of all that borrowing. Our Washington bureau chief John Dimsdale reports.


JOHN DIMSDALE: To come up with money for the bailout, the Treasury Department is benefiting from a rush to safe investments. There’s healthy demand right now for Treasury securities, says Marilyn Cohen of Envision Capital.

MARILYN COHEN: We’re gonna once again have to lean on the kindness of foreigners. You’ll see public pension funds and the usual players that like to have the safety of U.S. treasury bonds.

But she thinks Treasury will have to pay higher interest rates to attract new debt holders. That could raise longer-term interest rates for other borrowers.

Cohen also worries that all this U.S. government debt could undermine the value of the dollar. But Fred Bergsten at the Petersen Institute for International Economics doesn’t think that will last.

FRED BERGSTEN: If the markets think the U.S. is really getting the problem under control and maybe even more quickly than other countries, it could actually strengthen the exchange rate of the dollar.

The price of oil reversed its steady decline today, closing above $120 a barrel. Economics Professor Randall Wray at the University of Missouri Kansas City says that’s due in part to oil traders thinking demand for that commodity is on the rise.

RANDALL WRAY: It could be that the markets rallied a little bit because they think the recession won’t be as severe as it might have been if we just continued with these rolling financial institution failures.

But many analysts today said these are short-term psychological reactions to news of the bailout. More lasting consequences depend on details of the final package.

In Washington I’m John Dimsdale for Marketplace.

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