How can we visualise such a large amount?
Well, it’s about a dime for every square meter of land in the US (9.1 cents per square meter of the contiguous 48).
Instead of buying Wall Street, the US taxpayers could’ve bought over 77 Large Hadron Colliders!
Or… enough gold to cover Lake Superior in a gold sheet (16 nanometers thick!).
700 billion dollars, man!
code monk 
2008-09-29 at 11:38:03
Enough to cover Delaware in dollar bills.
(and a bit to spare).
2008-09-29 at 11:41:42
(FWIW, covering the US in dollar bills would cost $886 tn).
2008-09-29 at 11:42:05
Dang, I didn’t mean to stay as D’s A.
2008-09-29 at 12:33:58
Everyone (who knows the US) knows what a hundred dollar bill is like. I suspect 95+% of westerners can imagine a regular swimming pool. A regular swimming pool filled with neatly-stacked hundred dollar bills is 50 billion dollars. I think this is about the limit of what people can imagine in terms of actual money.
The pallets of cash the Americans used to pay and bribe their cronies and contractors in Iraq were shrink-wrapped bricks of hundreds, fresh off the presses. It’s easy to hold a brick of up to about $150K in one hand. For a million you need a holdall or a suitcase, not an attache case.
Journalists usually use olympic swimming pools in these comparisons, but those are much bigger than what most people think of as a swimming pool (50 x 25 x 2+ metres, compared to, say, 25 x 10 x 2), so the attempt to make a quantity accessible is actually misleading by a factor of 5 or 6.
You might think gold would be useful for these comparisons because it is so dense, but a striking fact on which you can certainly win many bar bets is that gold is only about 5 times more valuable, volume-for-volume, than hundred dollar bills. Weight for weight, hundreds are much better value (at least, they are for now :-)).
In fact, gold and 500-euro notes have about the same value, volume-for-volume (depending on the price of gold, yada yada). And Google doesn’t know the thickness of european banknotes.
2008-09-29 at 14:05:01
It is odd that the vast majority of these comparisons related to the physical extent of paper money of various kinds or some other substitute for value. I am not sure that helps me at all – I rarely deal in physical money (so 2nd millennium) and almost never see more than a single note at a time.
Value I can understand though – surely more than $10,000 per inhabitant of the UK – or about a fifth of that in the US – makes a much better way of visualising it?
2008-09-29 at 14:24:46
$6,000 per household is a nice easy way to get Americans visualising it.
2008-10-02 at 16:44:26
That’s the amount ($700,000,000,000 or $6,000 per household).
Where will this amount come from? Will $6,000-worth of government resource, held in trust for each household, no longer be available for schools and roads? Or are they going to ‘print’ that amount in fresh new bills (or digital equivalent)?
What transaction is to be made with this amount? It won’t be destroyed. Will it be simply transferred to struggling financial institutions? Ultimately to the creditors, within and without the US, of US banks?
Will the US government get something in return for its money?
Who loses, and who gains, a share in this fantastical amount of dosh?
2008-10-02 at 17:10:18
The U.S. government will try to borrow the money, by issuing bonds.
The losers will be future U.S. taxpayers (who will have to pay the interest on the bonds), or just possibly the bondholders (if the U.S. government defaults).
2008-10-03 at 09:35:01
The US government will spend this money buying iffy assets (commonly described as “toxic waste”) from financial institutions. Mostly these assets are bundles of mortgages or derived somehow from bundles of mortgages: their value is the stream of future mortgage payments. Given the housing bubble and the fact that a lot of mortgages were “sub-prime” (i.e., approximately, lent to people who couldn’t afford them), nobody knows what default rate to expect on these mortgages, or what the foreclosure value of any defaulted mortgages will be (i.e. if a borrower fails to make the mortgage payments, the lender forecloses and sells the house, what it will fetch).
So at the moment nobody will buy any such assets at almost any price, and nobody except governments will lend to an institution which has many such assets on its books. This is why the assets are called “toxic waste”.
The idea of the plan is that the government will buy these mortgages, and hold them to maturity. This might be a good deal for the tax-payer or it might not. That all depends on the price paid, which will be set by the Treasury Secretary. The assets are currently valued on the institutions’ books at the “maturity value”, discounted very slightly for defaulting. A fair market price at the moment is close to zero. Expert assessments of the true long-term value vary widely (which is why nobody will buy them). Consensus appears to be that the taxpayer would get a good deal at 40-50% of maturity value, and a bad deal at 85% of maturity value.
A lot of left-ish commentators (e.g. Krugman) say that the package is missing protection for the government in the event that these assets really are worthless. For instance, equity warrants in the institutions (“if we lose a billion dollars on the mortgages, you give us a billion dollars’ worth of stock”). Many left-ish commentators favour a full-on “European” approach (nationalise the bank, sell off the good assets, retain the bad assets), like Northern Rock, Bradford and Bingley, Glitnir, Fortis, etc. Right-ish commentators hate that, of course.
2008-10-06 at 12:59:00
Gareth & Nick — thanks for the very helpful answers. The side-effects of the transaction are interesting, particularly the immediate ones:
The bonds will be bought, tying up money that could otherwise have been invested in something more beneficial (eg. bonds for roads, green power, etc). But the banks, having found a sucker prepared to give cash for toxic waste, will now have that pile of cash. The pile will not be as big as the bank’s crazy dreams had forecast, but money (liquidity) for banks to invest somewhere is good, yes?
But I guess this is not the end of the story: I presume that the money that banks poured into bad homeloans was not theirs! The money came from creditors, and they are likely to withdraw much of the pile. Perhaps they will invest it in bonds…
So by covering the delta of risk, the government converts 700B of for-bond money (must be safe) into for-bank money (may be invested in higher growth but riskier projects, eg. businesses). But I fear that, with current pessimism, this will be dwarfed by the amount of money moving in the opposite direction.
(Usual caveat: this I know from nothing).
2008-10-06 at 13:06:28
After Gareth’s comment I did a little investigating. Much to my surprise governments sometimes do default on their bonds. Even without a revolution.