Economists: After TARP And Stimulus, $600B More In Play

As the worldwide recession worsens, U.S. taxpayers face increasingly expensive options to boost the economy that could require hundreds of billions of additional dollars, a panel of economists told the Senate Budget Committee today. Noting the $350 billion spent by the government to shore up faltering banks and another $350 billion waiting to be allocated -- as well as the $800 billion-plus economic stimulus package -- the economists warned that as much as $600 billion more will be required from lawmakers to re-capitalize weakening banks, remove toxic assets from their balance sheets and address the foreclosure crisis. On top of that, the Federal Reserve might have to match that with another $600 billion to cover just the cost of bad assets on banks' balance sheets. "Until we stabilize the housing market, it'll be tough to do anything about the [sinking] economy," said Tim Adams, managing director of The Lindsey Group and a former Treasury undersecretary.

While the trio of economists -- who included Adams, Massachusetts Institute of Technology's Simon Johnson and Brad Setser of the Council on Foreign Relations -- differed on how the stimulus package should have been structured, they agreed the global crisis must be swiftly and effectively addressed by home governments or the world economy could crash. A "lost decade" is quite possible, said Simon, who worked for the IMF. Senate Budget Chairman Kent Conrad agreed, warning the economic distress could lead to a 60-year period of slow growth and recovery. Setser and Johnson suggested most of the additional money for saving banks and easing the housing crisis should come from the Treasury Department rather than from the Fed, since an influx of newly printed money could accelerate inflation. Of the remaining $350 billion in the Troubled Asset Relief Program, the economists said at least $100 billion should be spent on foreclosure relief, with the rest going to relieve banks of the bad mortgage loans on their books. That suggestion was welcomed by Budget ranking member Judd Gregg, who repeated his call for the Senate to refashion the stimulus by shifting money from long-term economic development toward the more immediate housing crisis. The Obama team has promised that $50 billion to $100 billion of the remaining TARP funds will be dedicated to anti-foreclosure efforts.